- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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, 1994
1-2360
(Commission File Number)
INTERNATIONAL BUSINESS MACHINES CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
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:
</TABLE>
<TABLE>
<CAPTION>
VOTING SHARES OUTSTANDING NAME OF EACH EXCHANGE
TITLE OF EACH CLASS AT MARCH 7, 1995 ON WHICH REGISTERED
- --------------------------------- -------------------------- ------------------------
<S> <C> <C>
Capital stock, par value 584,225,210 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
</TABLE>
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. X
The aggregate market value of the voting stock held by non-affiliates of the
registrant at March 7, 1995 was $46.6 billion.
Documents incorporated by reference:
Portions of IBM's Annual Report to Stockholders for the year ended
December 31, 1994 into Parts I and II of Form 10-K.
Portions of IBM's definitive Proxy Statement dated March 14, 1995 into
Part III of Form 10-K.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS:
IBM has two fundamental missions. First, the company strives to lead in the
creation, development and manufacture of the industry's most advanced
information technologies, including computer systems, software, networking
systems, and microelectronics. Second, the company translates these advanced
technologies into value for our customers worldwide through its sales and
professional services units in North America, Europe/Middle East/Africa, Asia
Pacific, and Latin America.
Management continues to believe its decision, in 1993 to remain an
integrated provider of information technology rather then becoming an emerging
federation of companies, was the correct one. This single interface to the
customer allows IBM employees to better understand and address the full range of
the customers' information needs and to provide them with comprehensive and
timely solutions.
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 1994 Annual Report to
Stockholders and is incorporated herein by reference:
1. Segment information and revenue by classes of similar products or
services--Pages 74 and 75.
2. Financial information by geographic areas--Pages 76 and 77.
3. Amount spent during each of the last three years on research and
development activities--Page 59.
4. The number of persons employed by the registrant-- Page 47.
5. The management discussion overview--Page 36.
ITEM 2. PROPERTIES:
At December 31, 1994, IBM's manufacturing and development facilities in the
United States had aggregate floor space of 55.2 million square feet, of which
43.4 million was owned and 11.8 million was leased. Of these amounts, 8.5
million square feet was vacant and 1.0 million square feet was being leased to
non-IBM businesses. Similar facilities in 15 other countries totaled 21.0
million square feet, of which 18.0 million was owned and 3.0 million was leased.
Of these amounts, 2.0 million square feet was vacant and .7 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
1
<PAGE>
maintain technological leadership, improve productivity, and meet customer
demand. For additional information on expenditures for plant, rental machines
and other property, refer to "Investments" on page 43 of IBM's 1994 Annual
Report to Stockholders which is incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS:
Refer to note M "Contingencies" on page 62 of IBM's 1994 Annual Report to
Stockholders which is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS:
Refer to pages 78 and 79 and the inside back cover of IBM's 1994 Annual
Report to Stockholders which are incorporated herein by reference solely as they
relate to this item.
IBM common stock is listed on the New York Stock Exchange, Midwest Stock
Exchange and Pacific Stock Exchange. There were 705,318 common stockholders of
record at March 7, 1995.
On February 28, 1995, the Board of Directors authorized the company to
repurchase outstanding depositary shares representing the IBM Series A Preferred
Stock. The company plans to buy the shares from time to time on the open market.
As of February 28, 1995, approximately 10.5 million depositary shares were
outstanding.
ITEM 6. SELECTED FINANCIAL DATA:
Refer to page 79 of IBM's 1994 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 36 through 47 of IBM's 1994 Annual Report to Stockholders
which are incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
Refer to pages 34 and 35 and 48 through 78 of IBM's 1994 Annual Report to
Stockholders which are incorporated herein by reference. Also refer to the
Financial Statement Schedule on page S-1 of this Form.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE:
Not applicable.
2
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:
Refer to pages 4 through 6 of IBM's definitive Proxy Statement dated March
14, 1995 which are incorporated herein by reference solely as they relate to
this item.
EXECUTIVE OFFICERS OF THE REGISTRANT (AT MARCH 28, 1995):
OFFICER
AGE SINCE
--- -------
Chairman of the Board of Directors and Chief
Executive Officer
Louis V. Gerstner, Jr.(1)................................... 53 1993
Senior Vice Presidents
J. Thomas Bouchard, Human Resources......................... 54 1994
James A. Cannavino, Strategy and Development(2)............. 50 1988
Nicholas M. Donofrio, Group Executive....................... 49 1995
Donato A. Evangelista, General Counsel...................... 62 1983
Ned C. Lautenbach, Group Executive.......................... 51 1987
G. Richard Thoman, Group Executive.......................... 50 1993
John M. Thompson, Group Executive........................... 52 1989
Patrick A. Toole, Group Executive........................... 57 1984
Jerome B. York, Chief Financial Officer(1).................. 56 1993
Vice President and Treasurer
Jeffrey D. Serkes........................................... 36 1994
- ------------
(1) Member of the Board of Directors.
(2) Will be retiring effective March 31, 1995.
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 J.
Thomas Bouchard, Louis V. Gerstner, Jr., Jeffrey D. Serkes, G. Richard Thoman,
and Jerome B. York, has been an an executive of IBM or its subsidiaries during
the past five years.
Mr. Bouchard was senior vice president, human resources, of U.S. West, Inc.,
a telecommunications company, from 1989 until joining IBM in 1994. Prior to
1989, he spent 15 years with United Technologies Corporation in a variety of
executive positions, including senior vice president of human resources.
Mr. Gerstner was the chairman of the board and chief executive officer of
RJR Nabisco Holdings Corporation, a food and tobacco company, from 1989 until
joining IBM in 1993. From 1985 to 1989, he was president of American Express
Company, and from 1983 to 1989, he was chairman and chief executive officer of
American Express Travel Related Services Co., Inc.
Mr. Serkes was vice president and deputy treasurer of RJR Nabisco, Inc., a
food and tobacco company, from 1993 until joining IBM in 1994. From 1987 to
1993, he also served as vice president and assistant treasurer, corporate
finance; director, capital markets; and manager, foreign exchange of RJR
Nabisco, Inc.
Mr. Thoman was the president of Nabisco International, Inc., a food company,
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., Inc. and CEO of American Express
International from 1989 to 1992.
Mr. York, from 1979 until joining IBM in 1993, served in a number of
executive positions at Chrysler Corporation, an automotive manufacturer,
including executive vice president-finance and chief financial officer from 1990
to 1993 and vice president and controller from 1989 to 1990. Prior
3
<PAGE>
to joining Chrysler, he held a number of technical and management positions with
General Motors Corporation, Ford Motor Corporation, The Hertz Corporation and
Baker Industries, Inc.
ITEM 11. EXECUTIVE COMPENSATION:
Refer to pages 12 through 20 of IBM's definitive Proxy Statement dated March
14, 1995, which are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS:
Refer to the section entitled "Stock Ownership" appearing on pages 9
through 11 of IBM's definitive Proxy Statement dated March 14, 1995,
which is incorporated herein by reference solely as it relates to this
item.
(b) SECURITY OWNERSHIP OF MANAGEMENT:
Refer to the section entitled "Stock Ownership" appearing on pages 9
through 11 of IBM's definitive Proxy Statement dated March 14, 1995,
which is incorporated herein by reference solely as it relates to this
item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
Refer to page 8 "Other Relationships" of IBM's definitive Proxy Statement
dated March 14, 1995, which is incorporated herein by reference.
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 1994 ANNUAL REPORT TO STOCKHOLDERS
WHICH ARE INCORPORATED HEREIN BY REFERENCE:
Report of Independent Accountants (page 35).
Consolidated Statement of Operations for the years ended December 31,
1994, 1993 and 1992 (page 48).
Consolidated Statement of Financial Position at December 31, 1994 and
1993 (page 49).
Consolidated Statement of Cash Flows for the years ended December 31,
1994, 1993 and 1992 (page 50).
Consolidated Statement of Stockholders' Equity at December 31, 1994,
1993 and 1992 (page 51).
Notes to Consolidated Financial Statements (pages 52 through 78).
2. FINANCIAL STATEMENT SCHEDULES REQUIRED TO BE FILED BY ITEM 8 OF THIS
FORM:
SCHEDULE
PAGE NUMBER
- ---- --------
7 Report of Independent Accountants on Financial Statement
Schedules.
S-1 II-- Valuation and Qualifying Accounts
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.
4
<PAGE>
3. EXHIBITS:
INCLUDED IN THIS FORM 10-K:
I-- Computation of Fully Diluted Earnings Per Share.
II-- Parents and Subsidiaries.
III-- Consent of Independent Accountants.
IV-- Additional Exhibits
(a) Supplemental Consolidated Statement of Operations--1994
and 1993.
V-- The By-laws of IBM as amended through February 1, 1995.
VI-- IBM's 1994 Annual Report to Stockholders, certain sections
of which have been incorporated herein by reference.
VII-- Powers of Attorney.
VIII-- Financial Data Schedule.
IX-- IBM Supplemental Executive Retirement Plan.
X-- IBM Extended Tax Deferred Savings Plan.
XI-- IBM Board of Directors Deferred Compensation and Equity
Award Plan.
NOT INCLUDED IN THIS FORM 10-K:
-- The Certificate of Incorporation of IBM is Exhibit VI to Form 10-K for
the year ended December 31, 1993, and is hereby incorporated by
reference.
-- A copy of the IBM 1994 Long-Term Performance Plan, a management
compensatory plan, is contained in Registration Statement No. 33-53777
on Form S-8, filed on May 24, 1994, and is hereby incorporated by
reference.
-- Board of Directors compensatory plans, as described under "Directors'
Compensation" on page 9 of IBM's definitive Proxy Statement dated
March 14, 1995, which is incorporated herein by reference.
-- The employment agreement for L.V. Gerstner, Jr. is Exhibit 19 to Form
10-Q dated March 31, 1993, and is hereby incorporated 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(l)
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(l) 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, 1995, 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 1994.
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 /s/ LOUIS V. GERSTNER,JR.
...................................
(LOUIS V. GERSTNER, JR.
CHAIRMAN OF THE BOARD OF DIRECTORS
AND CHIEF EXECUTIVE OFFICER)
Date: March 28, 1995
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.
SIGNATURE TITLE DATE
-------------- ----- ----
/s/ JEROME B. YORK Senior Vice March 28, 1995
.............................. President,
(JEROME B. YORK) Chief
Financial
Officer,
acting
Controller,
and Director |
|
|
HAROLD BROWN Director |
JAMES E. BURKE Director |
FRITZ GERBER Director |
NANNERL O. KEOHANE Director |
CHARLES F. KNIGHT Director |
THOMAS S. MURPHY Director |
LUCIO A. NOTO Director | By /s/JOHN E. HICKEY
JOHN B. SLAUGHTER Director | ......................
ALEX TROTMAN Director | (JOHN E. HICKEY)
LODEWIJK C. VAN WACHEM Director | ATTORNEY-IN-FACT
CHARLES M. VEST Director |
EDGAR S. WOOLARD, JR. Director |
6
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of
INTERNATIONAL BUSINESS MACHINES CORPORATION
Our audits of the consolidated financial statements referred to in our report
dated January 20, 1995 (which refers to the changes in the methods of accounting
for postemployment benefits in 1993, and income taxes in 1992), appearing on
page 35 of the 1994 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 Schedule listed in Item 14(a)2 of this Form
10-K. In our opinion, this Financial Statement Schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
/s/ PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, N.Y. 10036
January 20, 1995
7
<PAGE>
SCHEDULE II
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>
1994
Account deducted from assets:
Allowance for doubtful accounts
--Current........................................... $683 $ 36 $719
----- ----- -----
----- ----- -----
--Non-current....................................... $187 $ (21) $166
----- ----- -----
----- ----- -----
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
----- ----- -----
----- ----- -----
</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. With the growth of
the company's working capital financing business in 1994, the concentration of
such financings for certain large dealers and remarketers of information
industry products has become more significant. The allowances for receivable
losses for the year ended 1994, approximate less than three and one-quarter
percent of the company's current receivables and less than one and one-half
percent of the company's non-current receivables. The allowances 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, approximate less than three
percent of the company's current receivables and less than two percent of the
company's non-current receivables.
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
REFERENCE NUMBER EXHIBIT
PER ITEM 601 OF NUMBER IN
REGULATION S-K DESCRIPTION OF EXHIBITS THIS FORM 10-K
- ---------------- ----------------------------------------------------------- --------------
<C> <S> <C>
(3) Certificate of Incorporation and By-laws.
The Certificate of Incorporation of IBM is Exhibit VI to
Form 10-K for the year ended December 31, 1993, and is
hereby incorporated by reference.
The By-laws of IBM as amended through February 1, 1995. 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(l) 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(l) to Registration Statement
No. 33-49475(l) 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 1994 Long-Term Performance Plan is
contained in Registration Statement No. 33-53777 on Form
S-8, filed on May 24, 1994, and is hereby incorporated by
reference.
Board of Directors compensatory arrangements, as described
under "Director's Compensation" on page 9 of IBM's
definitive Proxy Statement dated March 14, 1995, which is
incorporated herein by reference.
IBM Supplemental Executive Retirement Plan. IX
IBM Extended Tax Deferred Savings Plan. X
IBM Board of Directors Deferred Compensation and Equity XI
Award Plan.
The employment agreement for L.V. Gerstner, Jr. is Exhibit
19 to Form 10-Q dated March 31, 1993, and is hereby
incorporated 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. VI
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
REFERENCE NUMBER EXHIBIT
PER ITEM 601 OF NUMBER IN
REGULATION S-K DESCRIPTION OF EXHIBITS THIS FORM 10-K
- ---------------- ----------------------------------------------------------- --------------
<C> <S> <C>
(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 Not applicable
security holders.
(23) Consents of experts and counsel. III
(24) Powers of attorney. VII
(27) Financial Data Schedule. VIII
(28) Information from reports furnished to state insurance Not applicable
regulatory authorities.
(99) Additional exhibits. IV
</TABLE>
<PAGE>
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:
-----------------------------------------------------------------------
1994 1993* 1992* 1991* 1990
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Number of shares on which
published earnings per
share is based:
Average outstanding
during year........ 584,958,699 573,239,240 570,896,489 572,003,382 572,647,906
Add--Incremental shares
under stock option and
stock purchase plans.. 4,308,269 -- -- -- 1,665,262
- --Incremental shares
related to 7 7/8% con-
vertible debentures
(average)............ -- -- -- -- 8,162,976
- --Incremental shares
related to 5 3/4% CGI
convertible bonds
(average)............ 7,715,391 -- -- -- --
----------- ----------- ----------- ----------- -----------
Number of shares on which
fully diluted earnings
per share is based..... 596,982,359 573,239,240 570,896,489 572,003,382 582,476,144
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net earnings (loss)
applicable to common
shareholders
(millions)........... $2,937 $(8,148) $(4,965) $(2,861) $5,967
Add--Net earnings (loss)
effect of interest on 7
7/8% convertible deben-
tures (millions)..... -- -- -- -- 65
- --Net earnings (loss)
effect of interest on 5
3/4% CGI convertible
bonds (millions)..... 19 -- -- -- --
----------- ----------- ----------- ----------- -----------
Net earnings (loss) on
which fully diluted
earnings per share is
based (millions)..... $2,956 $(8,148) $(4,965) $(2,861) $6,032
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Fully diluted earnings
(loss) per share......... $4.95 $(14.22) $(8.70) $(5.01) $10.36
Published earnings (loss)
per share.............. $5.02 $(14.22) $(8.70) $(5.01) $10.42
</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.
<PAGE>
EXHIBIT II
PARENTS AND SUBSIDIARIES
AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
STATE OR PERCENTAGE OF
COUNTRY VOTING
OF SECURITIES
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
IBM World Trade Corporation......................... Delaware 100
IBM Asia Pacific Service Corporation.............. Japan 100
IBM China/Hong Kong Corporation................... Delaware 100
IBM World Trade Asia Corporation.................. Delaware 100
WTC Insurance Corporation, Ltd. .................. Bermuda 100
IBM Argentina, S.A. .............................. Argentina 100(E)
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(E)
IBM Canada Limited-- IBM Canada Limitee........... Canada 100
IBM China Company Limited......................... China 100
IBM de Chile, S.A.C. ............................. Chile 90(F)
IBM de Colombia, S.A. ............................ Colombia 90(E)
IBM del Ecuador, C.A. ............................ Ecuador 100
IBM Southeast Asia Services Ltd. ................. Hong Kong 100
Tata Information Systems Ltd. (TISL).............. India 50
IBM Japan, Ltd. .................................. Japan 100
IBM Korea Systems Corporation..................... Korea 100
IBM Korea, Inc. .................................. Korea (South) 100
Grupo IBM Mexico, S.A. de C.V. ................... Mexico 100(B)
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
Thai Systems Corporation Ltd. .................... Thailand 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 Central Europe & Russia Inc. ............... Delaware 100
</TABLE>
<PAGE>
PARENTS AND SUBSIDIARIES
AS OF DECEMBER 31, 1994--(CONTINUED)
<TABLE>
<CAPTION>
STATE OR PERCENTAGE OF
COUNTRY VOTING
OF SECURITIES
INCORPORATION OWNED BY ITS
OR ORGANIZATION IMMEDIATE PARENT
--------------- ----------------
<S> <C> <C>
IBM World Trade Europe/Middle East/
Africa Corporation (continued)
IBM Oesterreich, Internationale Bueromaschinen
Gesellschaft m.b.H. .......................... Austria 100
International Business Machines of Belgium
S.A. ......................................... Belgium 100(D)
IBM Bulgaria Ltd. .............................. Bulgaria 100
C.T.S. d.o.o. .................................. Croatia 100
IBM Ceska Republika spol. s.r.o. ............... Czech Republic 100
IBM Slovensko spol. s.r.o. ..................... Slovak Republic 100
Compagnie IBM France, S.A. ..................... France 100(B)
IBM Eurocoordination, S.A. ..................... France --(C)
IBM Europe, 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 International Treasury Services Company..... Ireland --(K)
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
IBM (International Business Machines) Turk
Ltd. Sirketi................................ Turkey 98(A)
IBM International Centre for Asset Management
N.V. ......................................... Netherlands 100
International Maintenance Parts Logistics
B.V. ......................................... Netherlands --(J)
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
ISG Ltd. ....................................... South Africa 28(I)
International Business Machines, S.A. .......... Spain 100(B)
IBM Nordic Aktiebolag........................... Sweden 100
IBM Danmark A/S............................... Denmark 100
Oy International Business Machines AB......... Finland 100
IBM Svenska Aktiebolag........................ Sweden 100
IBM International Centre for Asset Management
A.G. ......................................... Switzerland 100
IBM (Schweiz)--IBM (Suisse)-- IBM
(Svizzera)--IBM (Switzerland)................. Switzerland 100
IBM United Kingdom Holdings Ltd................. United Kingdom 100
</TABLE>
(Footnotes on following page)
<PAGE>
(Footnotes for preceding page)
- ------------
<TABLE>
<C> <S>
(A) Remaining percentage owned by IBM World Trade Europe/Middle East/Africa Corporation.
(B) Minor percentage held by minority IBM 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 four 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) IBM SEMEA S.p.A. holds an additional 24% of ISG Ltd.
(J) Owned jointly by nine IBM Europe/Middle East/Africa Corporation subsidiaries in Europe.
(K) IBM France and IBM Finland each own 16.6% and IBM Denmark and IBM Switzerland each own
33.3% of IBM International Treasury Services Company.
</TABLE>
<PAGE>
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, 33-5225, 33-29022, 33-33458 and 33-34406) and Form S-3 (No. 33-50537
and 33-54375) of International Business Machines Corporation of our report dated
January 20, 1995 appearing on page 35 of the 1994 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 Schedule,
which appears on page 7 of this Form 10-K.
/s/ PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, N.Y. 10036
March 28, 1995
Exhibit V
BY-LAWS
of
INTERNATIONAL BUSINESS MACHINES CORPORATION
Adopted April 29, 1958
As Amended Through
February 1, 1995
[February 1, 1995] -1-
<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...................... 6
[February 1, 1995] -2-
<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........................ 7
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
[February 1, 1995] -3-
<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 VIII
OFFICES
SEC. 1. Principal Office.................. 17
SEC. 2. Other Offices..................... 17
ARTICLE IX
Waiver of Notice.............................. 17
ARTICLE X
Fiscal Year.................................,, 18
ARTICLE XI
Seal.......................................... 18
ARTICLE XII
Amendments.................................... 18
[February 1, 1995] -4-
<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', or '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 Tuesday of April of each year, if not a legal holiday, or, if
such day 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
[February 1, 1995] -1-
<PAGE>
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. 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.
[February 1, 1995] -2-
<PAGE>
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 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
[February 1, 1995] -3-
<PAGE>
(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.
[February 1, 1995] -4-
<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
[February 1, 1995] -5-
<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 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,
[February 1, 1995] -6-
<PAGE>
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 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
[February 1, 1995] -7-
<PAGE>
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
[February 1, 1995] -8-
<PAGE>
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, and may include one or more Vice
Chairmen 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. 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.
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.
[February 1, 1995] -9-
<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, when there is no President or in the absence or incapacity of the
President, shall 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
[February 1, 1995] -10-
<PAGE>
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, the Directors and Corporate Governance
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;
[February 1, 1995] -11-
<PAGE>
(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.
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.
[February 1, 1995] -12-
<PAGE>
SECTION 12. Controller. The Controller shall:
(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.
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
[February 1, 1995] -13-
<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
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
[February 1, 1995] -14-
<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 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, 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
[February 1, 1995] -15-
<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
[February 1, 1995] -16-
<PAGE>
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
[February 1, 1995] -17-
<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.
[February 1, 1995] -18-
<PAGE>
INTERNATIONAL BUSINESS
MACHINES CORPORATION
I, the undersigned, Secretary of International Business Machines
Corporation, do hereby certify that the foregoing is a true and complete
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 day of 19 .
....................
Secretary
[February 1, 1995] -19-
<PAGE>
EXHIBIT IV
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
ADDITIONAL EXHIBITS
A supplemental Consolidated Statement of Operations schedule has been
provided for informational purposes only, to exclude the effects of the Federal
Systems Company (FSC) sale and a change in software amortization periods adopted
in the first quarter of 1994. The 1993 results exclude FSC results,
restructuring charges, and the effect of implementing Statement of Financial
Accounting Standards 112, "Employers' Accounting for Postemployment Benefits."
This supplemental statement is shown in Exhibit IVa.
The sale of FSC is discussed on page 47 of IBM's 1994 Annual Report to
Stockholders, while the software change is discussed on pages 38 and 39.
Restructuring charges are discussed on pages 60 and 61, while the accounting
change is discussed on page 54.
<PAGE>
EXHIBIT IV(A)
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
SUPPLEMENTAL CONSOLIDATED STATEMENT OF OPERATIONS*
1994 AND 1993
1994+ 1993+
------- -------
(DOLLARS IN
MILLIONS EXCEPT
PER SHARE AMOUNTS)
Revenue:
Hardware sales.......................................... $32,344 $30,337
Software................................................ 11,346 10,953
Services................................................ 9,715 7,686
Maintenance............................................. 7,222 7,295
Rentals and financing................................... 3,425 4,166
------- -------
64,052 60,437
Cost:
Hardware sales.......................................... 21,300 20,447
Software................................................ 4,384 4,310
Services................................................ 7,769 6,418
Maintenance............................................. 3,635 3,545
Rentals and financing................................... 1,384 1,738
------- -------
38,472 36,458
Gross Profit.............................................. 25,580 23,979
Operating expenses:
Selling, general and administrative..................... 16,298 18,272
Research, development and engineering................... 4,363 5,558
------- -------
Operating income (loss)................................... 4,919 149
Other income, principally interest........................ 1,377 1,108
Interest expense.......................................... 1,227 1,273
------- -------
Earnings (loss) before income taxes....................... 5,069 (16)
Provision (benefit) for income taxes...................... 2,104 80
------- -------
Net earnings (loss)....................................... 2,965 (96)
Preferred stock dividends................................. 84 47
Net earnings (loss) applicable to common shareholders..... $ 2,881 $ (143)
------- -------
------- -------
Net earnings (loss) per share common stock................ $ 4.92 $ (.25)
------- -------
------- -------
Average number of common shares outstanding (M's)......... 585.0 573.2
- ------------
* See text in Exhibit IV
+ Unaudited
EXHIBIT IX
IBM SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(Effective January 1, 1995)
<PAGE>
INDEX
_____
ARTICLE 1 - Purpose 1
ARTICLE 2 - Definitions 1
ARTICLE 3 - Coverage and Effect 3
ARTICLE 4 - Management and Administration 3
ARTICLE 5 - Claims Procedure 5
ARTICLE 6 - Service Credit 5
A. Foreign Service 5
B. Service Credit for Leaves of Absence 6
C. Other Service Credit 6
ARTICLE 7 - Retirement Date and Commencement of Benefits 6
A. Normal Retirement Date 6
B. Early Retirement Date 6
C. Commencement of SERP Benefits 7
ARTICLE 8 - SERP Benefits 7
A. Normal Retirement Benefit 7
B. Early SERP Benefit 8
C. Form and Method of Payment 9
D. Effective Date of Election 10
E. Revocation of Election 10
F. SERP Benefits for Disabled Participants 11
ARTICLE 9 - Preretirement Spousal Annuity 11
ARTICLE 10 - Suspension of Benefits for Reemployed Retired 11
Participants
ARTICLE 11 - Forfeiture 12
<PAGE>
A. Competitive or Prejudicial Conduct 12
B. Disclosure of Confidential Information 12
C. Disclosure and Assignment of Rights 13
D. Forfeiture and Rescission 13
ARTICLE 12 - Information for Benefits Calculations 13
A. Incomplete or Incorrect Information 13
B. Overpayments 14
ARTICLE 13 - Alienation of Benefits 14
ARTICLE 14 - Withholding Taxes 14
ARTICLE 15 - Distributions to Minors and Incompetents 14
ARTICLE 16 - No Right to Employment 15
ARTICLE 17 - Unfunded Plan 16
ARTICLE 18 - Miscellaneous 17
A. Construction 17
B. Severability 18
C. Title and Headings Not to Control 18
D. Complete Statement of Plan 18
E. Booklets and Brochures 18
ARTICLE 19 - Situs of Plan; Governing Law 18
<PAGE>
ARTICLE 1 - Purpose
___________________
International Business Machines Corporation ("IBM"), a New York
corporation, has established the IBM Supplemental Executive
Retirement Plan (the "SERP" or the "Plan") with the intention
of attracting and retaining executives whose skills and talents
are important to IBM's operations by providing a monthly
retirement income that supplements benefits under the IBM
Retirement Plan.
ARTICLE 2 - Definitions
_______________________
a. Company - IBM and its Domestic Subsidiaries,
excluding foreign offices of the Company except as
otherwise provided in these Articles.
b. Subsidiary - a corporation, or other form of business
organization, the majority interest of which is
owned, directly or indirectly, by the Company.
c. Domestic Subsidiary - a Subsidiary organized and
existing under the laws of the United States or any
state, territory or possession thereof, provided,
however, that the Plan shall not be deemed to cover
the employees of any Domestic Subsidiary unless so
authorized by the chief human resources officer of
IBM.
d. Board of Directors - the Board of Directors of
IBM.
e. Executive Compensation and Management Resources
Committee (also, the "Committee") - the Executive
Compensation and Management Resources Committee of
the Board of Directors or such other persons or group
as said Board may appoint to serve as the Committee.
f. Foreign Service - Service with a Foreign Subsidiary
(i.e., a Subsidiary other than a Domestic Subsidiary)
or with a Foreign Branch (i.e., a branch of the
Company or of a Domestic Subsidiary that operates
principally outside the United States, its
territories or possessions).
g. IBM Retirement Plan - the retirement plan established
by IBM pursuant to a resolution of its Board of
Directors effective December l8, l945, as amended
from time to time.
-1-
<PAGE>
h. Regular Employee (also, "Employee") - an employee so
defined by the IBM Retirement Plan.
i. Executive - A Regular Employee so classified in the
sole discretion of the Company's chief human
resources officer.
j. Participant - an Executive who meets the requirements
of ARTICLE 3, or a former Executive who is accruing
or receiving Benefits pursuant to the provisions of
the Plan.
k. Beneficiary - a person who is designated by a
Participant or by the terms of the Plan to receive a
Benefit under the Plan in respect of a deceased
Participant. A Beneficiary shall not be considered a
Participant by virtue of this definition.
l. ERISA - the Employee Retirement Income Security Act
of l974, as amended from time to time.
m. Plan Administrator - a person or a committee
appointed pursuant to ARTICLE 4 hereof which shall be
responsible for reporting, record keeping and related
administrative matters under the Plan. If a
committee is appointed to serve as the Plan
Administrator, any one of the members of the
committee may act individually on behalf of the
committee to fulfill the committee's duties.
n. Continuous Service - Service as defined in the IBM
Retirement Plan except as provided in ARTICLE 6
hereof; provided that a Participant shall not in any
event be considered to have more than 35 years of
Continuous Service hereunder.
o. Compensation - Compensation as defined in the IBM
Retirement Plan except that in no event shall 1989 or
1994 Long-Term Incentive Plan awards or payments or
payments under any successor plan be included in
Compensation.
p. Plan Year - the calendar year.
q. Normal Retirement Age - age 65.
r. Normal Retirement Date - the date specified by
ARTICLE 7A hereof.
s. Early Retirement Date - the date on which a
Participant retires from employment with the Company
-2-
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in accordance with the provisions of ARTICLE 7B
hereof.
t. Spouse - a person who, according to the laws of the
state of a Participant's domicile, is the
Participant's spouse on the earlier of (i) the date
of the Participant's death while employed by the
Company or (ii) the Participant's Annuity
Commencement Date.
u. Actuarial Equivalent - shall mean a form of payment
that is equal in value to another form of payment, as
determined by the Plan Administrator in accordance
with the actuarial assumptions specified by the IBM
Retirement Plan.
v. Annuity Commencement Date - shall mean the date as of
which SERP Benefits are scheduled to commence.
w. SERP Benefit (also, "Benefit") - a payment or series
of payments made or due under the Plan.
x. Pay - the average of the Participant's annual
Compensation over (i) the last five years of
employment or (ii) the highest consecutive five
calendar years of employment, whichever is greater.
y. Breakpoint - $185,000, subject to such adjustments as
may be made from time to time by IBM's chief human
resources officer in his or her sole discretion.
z. Earnings Threshold - $150,000, subject to such
adjustments as may be made from time to time by IBM's
chief human resources officer in his or her sole
discretion.
ARTICLE 3 - Coverage and Effect
_______________________________
This document states the terms of the Plan as established by
Resolution of the Board of Directors on October 24, 1994 and
first effective on January 1, 1995. Participation is limited
to Executive Level Regular Employees in the United States whose
Pay equals or exceeds the Earnings Threshold.
ARTICLE 4 - Management and Administration
_________________________________________
The Plan may be amended from time to time for any purpose
permitted by law or terminated at any time by written
resolution of the Board or the Committee, but only if the
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<PAGE>
Committee's action is not materially inconsistent with a prior
action of the Board. The authority to amend or terminate the
Plan shall include the authority to amend the procedure for
amending or terminating the Plan and the authority to amend or
terminate any related instrument or agreement.
The following persons and groups of persons shall severally
have the authority to control and manage the operation and
administration of the Plan as herein delineated: (a) the Board
of Directors, (b) the Executive Compensation and Management
Resources Committee, (c) IBM's chief human resources officer,
and (d) the Plan Administrator and each person on any committee
serving as the Plan Administrator. Each person or group of
persons shall be responsible for discharging only the duties
assigned to it by the terms of the Plan.
The Board of Directors shall be responsible only for
designating those persons who will serve on the Committee and
for approving any resolution to terminate the Plan.
The Committee may, pursuant to a duly adopted resolution,
delegate to IBM's chief financial officer, chief human
resources officer, or Treasurer, the Plan Administrator and/or
any other officer or employee of IBM, authority to carry out
any decision, directive or resolution of the Committee.
The Committee shall appoint one or more executives employed by
IBM to serve as Plan Administrator or as a committee to fulfill
the function of Plan Administrator. The Plan Administrator
shall have the full power and authority, in its sole
discretion: (a) to promulgate and enforce such rules and
regulations as it shall deem necessary or appropriate for the
administration of the Plan; (b) to adopt any amendments to the
Plan that are required by law; (c) to interpret the Plan
consistent with the terms and intent thereof; and (d) to
resolve any possible ambiguities, inconsistencies and omissions
in the Plan. All such actions shall be in accordance with the
terms and intent of the Plan and the Plan Administrator shall
on a regular basis report such actions to the Committee.
Additionally, IBM's chief human resources officer shall appoint
and designate such other IBM employees as may be needed to
provide adequate staff services to the Committee and the Plan
Administrator.
The Committee and/or the Plan Administrator may engage the
services of accountants, attorneys, actuaries, consultants and
such other professional personnel as they deem necessary or
advisable to assist them in fulfilling their responsibilities
under the Plan. The Committee, the Plan Administrator, and
their delegates and assistants shall be entitled to act on the
-4-
<PAGE>
basis of all tables, valuations, certificates, opinions and
reports furnished by such professional personnel.
ARTICLE 5 - Claims Procedure
____________________________
IBM's Executive Compensation Department is responsible for
advising Participants and Beneficiaries of their Benefits under
the Plan. If a Participant or Beneficiary believes he or she
is entitled to Benefits and has not received them, the
Participant or Beneficiary must submit a written claim to the
Director of Executive Compensation, IBM Corporation, Old
Orchard Road, Armonk, New York l0504. The Plan Administrator
shall furnish to the Participant or Beneficiary a written
decision setting forth the Plan Administrator's decision.
If the Plan Administrator denies a claim for Benefits in whole
or in part, the claimant may appeal the denial of the claim in
writing within 60 days of receiving the Plan Administrator's
written decision.
ARTICLE 6 - Service Credit
__________________________
A. Foreign Service
_______________
All Foreign Service by a Regular Employee who is otherwise
eligible for Benefits under the Plan will be deemed for
all Plan purposes, in all respects as Continuous Service
with the Company, except that there shall be deducted from
the combined amount payable under the Plan and the IBM
Retirement Plan, any amount paid or payable to the
Participant or Beneficiary arising out of Foreign Service
to the extent that credit is given for such Foreign
Service under this ARTICLE 6A and pursuant to any pension,
retirement, severance indemnity, provident fund or other
similar plan--whether in the form of installments or lump
sum and whether private or sponsored by a foreign govern-
ment--to the extent not provided by direct contributions
made by the Participant,
(l) provided that a Participant with such Foreign Service
immediately preceded by Continuous Service with the
Company must, before credit for such Foreign Service
is given, resume employment as a Regular Employee of
the Company; and
(2) further provided that a Participant with such Foreign
Service not immediately preceded by Continuous
Service with the Company must, before credit for such
Foreign Service is given, complete one year of
-5-
<PAGE>
Continuous Service as a Regular Employee of the
Company subsequent to such Foreign Service.
B. Service Credit for Leaves of Absence
____________________________________
A Participant who commences a leave of absence granted
under IBM's human resources practices then in effect, and
who resumes the status of an Executive Level Regular
Employee upon completion of the leave, shall be deemed,
for all Plan purposes, as having been an actively employed
Participant throughout the leave and to have received
Compensation during the leave at the rate in effect
immediately before the leave began. If the Participant
does not so resume his or her status as an Executive Level
Regular Employee for at least 30 days for any reason other
than disability or death, the Participant shall be treated
as having severed from service with the Company on the
date immediately preceding the date the leave began (i.e.,
the last day worked), and neither the Participant nor the
Participant's Beneficiary shall be eligible for a SERP
Benefit.
C. Other Service Credit
____________________
IBM's chief executive officer, or other senior officer
designated by the Committee, in his or her sole
discretion, may grant Continuous Service credit to an
Executive in excess of actual Continuous Service subject
to such limitations and conditions as the officer
considers appropriate, if the officer deems this to be in
the best interests of the Company.
ARTICLE 7 - Retirement Date and Commencement of Benefits
________________________________________________________
A. Normal Retirement Date
______________________
A Participant's Normal Retirement Date is the last working
day of the month in which his or her 65th birthday occurs;
provided that the Participant has completed one year of
Continuous Service, and further provided that, if a
Participant was born on the first day of the month, the
Normal Retirement Date shall be the last day of the month
immediately preceding the 65th anniversary of birth.
B. Early Retirement Date
_____________________
A Participant described in any of the following paragraphs
may retire from employment on an Early Retirement Date
specified in the applicable paragraph below:
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<PAGE>
1. A Participant with 30 years or more of
Continuous Service may retire on an Early
Retirement Date at the end of any month,
2. A Participant with 15 or more years of
Continuous Service may retire on an Early
Retirement Date at the end of any month at or
after reaching age 55,
3. A Participant with five or more years of
Continuous Service who is eligible to receive
Social Security benefits at age 62 may retire on
an Early Retirement Date at the end of any month
at or after reaching age 62;
provided that in order to retire on an Early Retirement
Date a Participant must give the Company at least six
months prior written notice, in a form approved by the
Plan Administrator, of his or her intention to retire
early and to have SERP Benefits commence, unless the Plan
Administrator waives such notice requirement.
C. Commencement of SERP Benefits
_____________________________
In addition to all other conditions, in no event shall
payment of SERP Benefits commence unless and until the
Participant applies for such Benefits before his or her
Annuity Commencement Date. In no event shall any SERP
Benefit be paid under this Plan unless the Participant (1)
meets the Plan's eligibility conditions on the date of his
or her retirement, disability, or death, (2) retires (or
dies while eligible to retire) under the terms of the IBM
Retirement Plan, (3) holds an Executive Level position (as
determined by IBM's chief human resources officer in his
or her sole discretion) on the date of his or her
retirement or death, and (4) complies with the
requirements imposed by ARTICLE 11 hereof.
ARTICLE 8 - SERP Benefits
_________________________
A. Normal Retirement Benefit
_________________________
The Participant's SERP Benefit, when expressed as a single
life annuity commencing as of the first day of the month
next following the Participant's Normal Retirement Date,
shall be equal to one-twelfth of the Phase-In Percentage
(defined below) multiplied by the excess of (i) the
Pension Credit (defined below) over (ii) the total annual
single life annuity benefit at Normal Retirement Age,
including the single life annuity benefit attributable to
-7-
<PAGE>
the Personal Retirement Provision whether such is paid in
annuity form or not, payable monthly to the Participant
under the IBM Retirement Plan or under any pension
arrangement between the Company and a Participant which is
payable monthly for life after termination of employment.
The Phase-In Percentage shall be determined on the date
the Participant retires, and shall not be increased
thereafter. If the Participant retires on January 31,
1995, the Phase-In Percentage shall be 27%. If the
Participant retires after January 31, 1995, the Phase-In
Percentage shall be 27% plus 2% for each succeeding month
(3% for the month of December) up to and including the
month of the Participant's retirement, until the Phase-In
Percentage reaches 100% for a Participant retiring on or
after December 31, 1997. The Phase-In Percentage shall
in no event exceed 100%.
The Pension Credit shall be a single life annuity equal to
the sum of:
(1) 1.7% of Pay up to the Breakpoint, plus 2.55% of Pay in
excess of the Break Point (if any), multiplied by the
Participant's years of Continuous Service up to a maximum
of 20 years,
(2) 1.3% of Pay multiplied by the Participant's years of
Continuous Service between 20 and 30 years (if any), plus
(3) .75% of Pay multiplied by the Participant's Continuous
Service between 30 and 35 years (if any).
B. Early SERP Benefit
__________________
If the Participant elects to retire on an Early Retirement
Date with an Annuity Commencement Date on or after his or
her 60th birthday, the Participant's SERP Benefit when
paid in the form of a single life annuity, shall be equal
to the SERP Benefit calculated in accordance with Section
A of this ARTICLE 8 based on the Participant's years of
Continuous Service and Pay on the Participant's Early
Retirement Date.
If the Participant elects to retire on an Early
Retirement Date with an Annuity Commencement Date before
his or her 60th birthday, the Participant's SERP Benefit,
when paid in the form of a single life annuity, shall be
be the amount determined in accordance with the following
table:
-8-
<PAGE>
Participant's SERP Benefit under
Age at Annuity ARTICLE 8A hereof,
Commencement Date reduced
begins by the following
______ ________________
59 3%
58 7%
57 11%
56 15%
55 20%
below 55 20% plus 5% per year for
each year before the Participant's
55th birthday
For each month of age falling between the ages or years
shown above, one-twelfth of the difference between the
respective factors should be added.
The reductions described in this Section 8B shall be
applied to the Pension Credit calculation under ARTICLE 8A
prior to the subtraction of any benefit payable under the
IBM Retirement Plan. The Phase-In Percentage shall be
applied to the net SERP Benefit.
C. Form and Method of Payment
__________________________
The normal form of payment of the SERP Benefit for a
Participant who is unmarried on his or her Annuity
Commencement Date is a single life annuity for the
Participant's life.
The normal form of payment of the SERP Benefit for a
Participant who is married on his or her Annuity
Commencement Date is a joint and survivor annuity
providing an annuity to the Participant for life, in a
monthly amount that is less than that payable under a
single life annuity, and a survivor annuity for the life
of the Participant's Spouse in a monthly amount equal to
50 percent of the monthly amount payable to the married
Participant during his or her lifetime. This form of
payment, which constitutes a 50% joint and survivor
annuity, shall be the Actuarial Equivalent of the single
life annuity otherwise payable to the Participant, based
on the age of the Participant and the age of the
Participant's Spouse as of the Annuity Commencement Date.
A Participant also may elect to be paid under any
alternative form of payment available under the IBM
Retirement Plan except for the Early Retirement Level
Income Option. Any such election must be made in the
manner and form prescribed by IBM's Executive Compensation
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<PAGE>
Department which may, in certain instances, require the
consent of the Participant's Spouse to the alternative
form of payment. Each alternative form of payment shall
be the Actuarial Equivalent of the single life annuity
payable to the Participant in accordance with this ARTICLE
8.
Payment of the SERP Benefit shall be made monthly as of
the first day of the month beginning with the month
following the month in which the Participant retires from
employment with the Company.
D. Effective Date of Election
__________________________
Any election under this ARTICLE 8 shall be effective on
the later of the Participant's Annuity Commencement Date
or 30 days after IBM's Executive Compensation Department
receives the election. The death of a survivor annuitant
before the Participant's Annuity Commencement Date
automatically revokes any such election. The death of a
survivor annuitant on or after the Participant's Annuity
Commencement Date does not revoke the Participant's
election.
E. Revocation of Election
______________________
A Participant may revoke an election he or she has made
under this ARTICLE 8 at any time before the Participant's
Annuity Commencement Date. In order to be effective, any
such revocation must be received by IBM's Executive
Compensation Department before the Annuity Commencement
Date and must be made in the manner and form prescribed by
IBM's Executive Compensation Department. A timely
revocation of an election shall only become effective upon
receipt by IBM's Executive Compensation Department.
If a Participant revokes an election of an alternative
form of payment, the Participant's form of payment shall
automatically revert to the normal form of payment
prescribed by this ARTICLE 8. After revoking an election,
the Participant may elect an alternative form of payment
in accordance with this ARTICLE 8; however, in order to
become effective, the Participant's election of an
alternative form of payment (other than the normal form of
payment) must be received by IBM's Executive Compensation
Department before the Participant's Annuity Commencement
Date. A timely election shall become effective as of the
later of the Participant's Annuity Commencement Date or 30
days after IBM's Executive Compensation Department
receives the election.
-10-
<PAGE>
F. SERP Benefits for Disabled Participants
_______________________________________
A Participant who (i) becomes totally and permanently
disabled (as determined in accordance with the terms of
the IBM Long Term Disability Plan) after becoming eligible
to retire hereunder and while at Executive Level, (ii)
remains so disabled until Normal Retirement Age, and (iii)
receives benefits under the IBM Long Term Disability Plan,
shall be eligible to receive a SERP Benefit upon reaching
Normal Retirement Age, notwithstanding his or her
ineligibility for that Benefit under other provisions of
the Plan.
The Annuity Commencement Date for such disabled
Participant shall be his or her Normal Retirement Date.
The disabled Participant's SERP benefit shall be based on
the Participant's Pay and Continuous Service on the date
the Participant's IBM Sickness and Accident Income Plan
benefits cease.
ARTICLE 9 - Preretirement Spousal Annuity
_________________________________________
A preretirement spousal annuity shall be payable to the Spouse
of a Participant who dies before his or her Annuity
Commencement Date, but who, on the date of death, is both
married and eligible to retire immediately hereunder. The
preretirement spousal annuity shall be the survivor annuity
that the Participant's Spouse would have received under the
Plan had the Participant retired on his or her date of death
with a 50 percent joint and survivor annuity in effect in
accordance with the provisions of ARTICLE 8 hereof. In no
event shall the preretirement spousal annuity be payable to
anyone other than the Participant's Spouse on the date of the
Participant's death.
ARTICLE 10 - Suspension of Benefits for Reemployed
__________________________________________________
Retired Participants
____________________
If a retired Participant is reemployed by the Company, any SERP
Benefits otherwise payable to the Participant shall be
suspended during the period of reemployment. If the reemployed
Participant subsequently completes one year of Continuous
Service and retires from the Company, the Participant shall be
eligible for SERP Benefits under the terms of the Plan in
effect on the date the Participant's employment with the
Company ceases, based on the Participant's Pay and Continuous
Service as of that date, but reduced by the Actuarial
Equivalent of any Benefits paid before the Participant's
reemployment. If the reemployed Participant again retires
-11-
<PAGE>
without having completed one year of Continuous Service during
his or her period of reemployment, the SERP Benefits being paid
to the Participant immediately before his or her reemployment
shall resume, without adjustment, immediately following his or
her retirement.
ARTICLE 11 - Forfeiture
_______________________
A. Competitive or Prejudicial Conduct
__________________________________
A Participant shall not render services for any
organization or engage directly or indirectly in any
business which, in the judgment of the chief executive
officer of the Company or other senior officer designated
by the Committee, is or becomes competitive with the
Company, or which organization or business, or the
rendering of services to such organization or business, is
or becomes otherwise prejudicial to or in conflict with
the interests of the Company. For a Participant whose
employment has terminated, the judgment of the chief
executive officer shall be based on the Participant's
position and responsibilities while employed by the
Company, the Participant's post-employment
responsibilities and position with the other organization
or business, the extent of past, current and potential
completion or conflict between the Company and the other
organization or business, the effect on the Company's
customers, suppliers and competitors of the Participant
assuming the post-employment position, the guidelines
established in the then current edition of IBM's booklet,
Business Conduct Guidelines, and such other considerations
___________________________
as are deemed relevant given the applicable facts and
circumstances. A Participant who has retired shall be
free, however, to purchase as an investment or otherwise,
stock or other securities of such organization or business
so long as they are listed upon a recognized securities
exchange or traded over-the-counter, and such investment
does not represent a substantial investment to the
Participant or a greater than 10 percent equity interest
in the organization or business.
B. Disclosure of Confidential Information
______________________________________
A Participant shall not, without prior written
authorization from the Company, disclose to anyone outside
the Company, or use in other than the Company's business,
any confidential information or material, as defined in
the Company's Agreement Regarding Confidential Information
and Intellectual Property, related to the business of the
Company, acquired by the Participant either during or
-12-
<PAGE>
after employment with the Company.
C. Disclosure and Assignment of Rights
___________________________________
A Participant, pursuant to the Company's Agreement
Regarding Confidential Information and Intellectual
Property shall disclose promptly and assign to the Company
all right, title, and interest in any invention or idea,
patentable or not, made or conceived by the Participant
during employment by the Company, relating in any manner
to the actual or anticipated business, research, or
development work of the Company and shall do anything
reasonably necessary to enable the Company to secure a
patent where appropriate in the United States and in other
countries.
D. Forfeiture and Rescission
_________________________
Upon retirement, and from time to time thereafter upon
request by the Committee, the Participant shall certify on
a form acceptable to the Committee that he or she is in
compliance with the terms and conditions of the Plan.
Failure to comply with the provisions of Section A, B, or
C of this ARTICLE prior to retirement or receipt of any
Benefit payment hereunder shall cause the forfeiture of
all SERP Benefits even if the failure to comply is not
discovered until Benefits have commenced. Failure to
comply with the provisions of Section A, B, and C of this
ARTICLE after SERP Benefits have commenced hereunder shall
cause any such payments to be rescinded from the point in
time when the conduct which led to the failure to comply
occurred. The Plan Administrator shall notify the
Participant in writing of any such rescission, and within
ten days after receiving a notice of rescission from the
Company, the Participant shall pay to the Company in cash
the amount of any payment that has been rescinded in
accordance with this ARTICLE.
ARTICLE 12 - Information for Benefits Calculations
__________________________________________________
A. Incomplete or Incorrect Information
___________________________________
Any delay in receiving from a Participant or Beneficiary
information requested by the Company's Executive
Compensation Department, including but not limited to
information regarding a Participant's Spouse or other
factors necessary for the calculation of Benefits under
the Plan, shall result in the Benefits payable being based
initially on the information then available to IBM's
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<PAGE>
Executive Compensation Department and the Plan
Administrator, and their estimate of any unavailable
information. If additional or different information
thereafter becomes available to IBM's Executive
Compensation Department or the Plan Administrator,
Benefits shall be adjusted appropriately as determined by
the Plan Administrator.
B. Overpayments
____________
If any overpayment of Benefits is made under the Plan, the
amount of the overpayment may be set off against further
amounts payable to or on account of the person who
received the overpayment until the overpayment has been
recovered in full. The foregoing remedy is not intended
to be exclusive.
ARTICLE 13 - Alienation of Benefits
___________________________________
No Benefit payable under the Plan shall be subject to
alienation, sale, transfer, assignment, pledge, attachment,
garnishment, lien, levy or like encumbrance. No Benefit under
the Plan shall in any manner be liable for or subject to the
debts or liabilities of any person entitled to Benefits under
the Plan.
ARTICLE 14 - Withholding Taxes
______________________________
The Company and the Plan Administrator shall withhold such
taxes and make such reports to governmental authorities as they
reasonably believe to be required by law.
ARTICLE 15 - Distributions to Minors and Incompetents
_____________________________________________________
If the Plan Administrator determines that any Participant or
Beneficiary receiving or entitled to receive Benefits under the
Plan is incompetent to care for his or her affairs, and in the
absence of the appointment of a legal guardian of the property
of the incompetent, payments due under the Plan (unless prior
claim thereto has been made by a duly qualified guardian,
committee or other legal representative) may be made to the
spouse, parent, brother or sister or other person, including a
hospital or other institution, deemed by the Plan Administrator
to have incurred or to be liable for expenses on behalf of such
incompetent.
In the absence of the appointment of a legal guardian of the
property of a minor, any minor's share of Benefits under the
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<PAGE>
Plan may be paid to such adult or adults as in the opinion of
the Plan Administrator have assumed the custody and principal
support of such minor.
The Plan Administrator, however, in its sole discretion, may
require that a legal guardian for the property of any such
incompetent or minor be appointed before authorizing the
payment of Benefits in such situations. Benefit payments made
under the Plan in accordance with determinations of the Plan
Administrator pursuant to this ARTICLE 15 shall be a complete
discharge of any obligation arising under the Plan with respect
to such Benefit payments.
ARTICLE 16 - No Right to Employment
___________________________________
Nothing herein contained shall be deemed to give any employee
the right to be retained in the service of the Company or to
interfere with the right of the Company to discharge any
employee at any time without regard to the effect that such
discharge may have upon the employee under the Plan.
ARTICLE 17 - Unfunded Plan
__________________________
The Plan shall be unfunded. The Company shall not be required
to segregate any assets to provide Benefits, nor shall the Plan
be construed as providing for such segregation, nor shall the
Company or the Committee be deemed to be a trustee of any
assets of the Plan. Any liability of the Company to any
Participant or Beneficiary with respect to SERP Benefits shall
be based solely upon any contractual obligations created by the
Plan. No such obligation of the Company shall be deemed to be
secured by any pledge or other encumbrance or any property of
the Company. Neither the Company nor the Committee shall be
required to give any security or bond for the performance of
any obligation created by the Plan.
ARTICLE 18 - Miscellaneous
__________________________
A. Construction
____________
Unless the contrary is plainly required by the context,
wherever any words are used herein in the masculine
gender, they shall be construed as though they were also
used in the female gender, and vice versa, and wherever
any words are used herein in the singular form, they shall
be construed as though they were also used in the plural
form, and vice versa.
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<PAGE>
B. Severability
____________
If any provision of the Plan is held illegal or invalid
for any reason, such illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall
be construed and enforced as if such illegal or invalid
provision had never been inserted herein.
C. Titles and Headings Not to Control
__________________________________
The titles to ARTICLES and the headings of Sections in the
Plan are placed herein for convenience of reference only,
and in the event of any conflict, the text of the Plan,
rather than such titles or headings, shall control.
D. Complete Statement of Plan
__________________________
This document is a complete statement of the Plan. The
Plan may be amended, modified or terminated only in
writing and then only as provided herein.
E. Booklets and Brochures
______________________
The Company shall from time to time issue to Participants
one or more booklets or brochures summarizing the Plan.
In the event of any conflict between the Plan document and
the booklets and brochures, the Plan document shall
control.
ARTICLE 19 - Situs of Plan; Governing Law
__________________________________________
The situs of the Plan shall be the State of New York. The Plan
shall be governed by ERISA, and to the extent not preempted by
ERISA, the law of the State of New York.
-16-
EXHIBIT X
IBM EXTENDED
TAX DEFERRED SAVINGS PLAN
Effective January 1, 1995
<PAGE>
INTRODUCTION
The IBM Extended Tax Deferred Savings Plan has been authorized by the
Board of Directors of International Business Machines to be applicable
effective on and after January 1, 1995. The purpose of this Plan is to
attract and retain executives by providing a means for making
compensation deferrals and matching company contributions for those
employees eligible to participate in the International Business Machines
Tax Deferred Savings Plan with respect to whom compensation deferrals
and company contributions under the TDSP are or would be limited by
application of the limitations imposed on qualified plans by Sections
401(a)(17), 401(a)(30), and 415 of the Internal Revenue Code.
This Plan is intended to constitute an unfunded deferred compensation
plan for a select group of management or highly compensated employees
under Sections 201(2), 301(a)(2), 401(a)(1), and 4021(b)(6) of the
Employee Retirement Income Security Act of 1974, as amended. All
benefits payable under the Plan shall be paid out of the general assets
of the Company.
<PAGE>
IBM EXTENDED TAX DEFERRED SAVINGS PLAN
TABLE OF CONTENTS
ARTICLE 1. DEFINITIONS Page 1
ARTICLE 2. PARTICIPATION Page 4
2.01 Eligibility ........................................... Page 4
2.02 Participation ......................................... Page 4
ARTICLE 3. CONTRIBUTIONS Page 5
3.01 Amount of Deferral Contributions ...................... Page 5
3.02 Matching Contributions ................................ Page 5
3.03 Additional Company Contributions ...................... Page 5
3.04 Investment of Accounts ................................ Page 6
3.05 Vesting of Accounts ................................... Page 6
3.06 Individual Accounts ................................... Page 6
ARTICLE 4. INVESTMENT OF DEFERRALS AND DEFERRAL ACCOUNTS Page 7
4.01 Deemed TDSP Investments; Participant Control .......... Page 7
4.02 Change of Investment Selection on Future Deferrals .... Page 8
4.03 Change of Investment Selection on Existing Deferral
Accounts .............................................. Page 8
ARTICLE 5. PAYMENT OF ACCOUNTS Page 9
5.01 Commencement of Deferral Payments ..................... Page 9
5.02 Method of Payment ..................................... Page 9
5.03 Designation of Beneficiary ............................ Page 9
ARTICLE 6. GENERAL PROVISIONS Page 11
6.01 Funding ............................................... Page 11
6.02 No Contract of Employment ............................. Page 11
6.03 Facility of Payment ................................... Page 12
6.04 Withholding Taxes ..................................... Page 12
6.05 Nonalienation ......................................... Page 12
6.06 Administration ........................................ Page 12
6.07 Construction .......................................... Page 13
ARTICLE 7. MANAGEMENT AND ADMINISTRATION Page 14
7.01 Amendment or Termination .............................. Page 14
7.02 Responsibilities ...................................... Page 14
ARTICLE 8. CLAIMS PROCEDURE Page 16
<PAGE>
IBM EXTENDED TAX DEFERRED SAVINGS PLAN
ARTICLE 1. DEFINITIONS
The following words and phrases as used herein have the following meanings
unless a different meaning is required by the context:
1.01 "Accounts" shall mean the Company Account and the Deferral Account.
1.02 "Beneficiary" shall mean a person other than a Participant who is
designated by a Participant or by the terms of the Plan to receive a
benefit under the Plan by reason of the death of the Participant.
1.03 "Board" shall mean the Board of Directors of IBM.
1.04 "Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time. All citations to sections of the Code are to such sections as
they may from time to time be amended or renumbered.
1.05 "Committee" shall mean the Executive Compensation and Management
Resources Committee appointed by the Board.
1.06 "Company" shall mean International Business Machines Corporation ("IBM"),
a New York corporation having its principal place of business at Armonk,
New York, and its Domestic Subsidiaries, excluding Foreign Branches of the
Company except as may be otherwise provided in these Articles.
1.07 "Company Account" shall mean, with respect to a Participant, all amounts
credited to the Participant under Sections 3.02 and 3.03, and earnings,
gains, or losses on those amounts pursuant to Section 3.04.
1.08 "Company Contributions" shall mean the amount credited to a Participant
under Sections 3.02 and 3.03.
1.09 "Compensation" shall mean the Participant's salary and annual incentive
payment for a calendar year which would be payable to a Participant for
services rendered to the Company after the Participant is no longer able
to actively participate in the TDSP (or would have been unable to actively
participate in the TDSP if the Participant was not an active participant
in the TDSP) during the calendar year by reason of Code Section 401(a)(17)
or Code Section 401(a)(30). A Participant's Compensation will be
determined without regard to a Participant's election to make compensation
reduction contributions under the TDSP (or under a cafeteria plan pursuant
to Code Section 125) or to make Deferrals under this Plan.
1.10 "DCP Participant" shall mean a Participant who, for a calendar year, was
offered the opportunity by the Company to defer up to 100% of his or her
annual incentive payment payable for that calendar year.
1.11 "Deferral Account" shall mean, with respect to a Participant, the
Participant's account balance under the Deferred Compensation Plan that
<PAGE>
Page 2
has been transferred to this Plan, all amounts credited to a Participant
under Section 3.01 and earnings, gains, or losses on those amounts
pursuant to Section 3.04.
1.12 "Deferral Election Agreement" shall mean the agreement entered into by the
Participant pursuant to Section 2.02 under which he or she elects to defer
a portion of his or he` Compensation under this Plan.
1.13 "Deferrals" shall mean the amount credited to a Participant under
Section 3.01
1.14 "Deferred Compensation Plan" shall mean the incentive compensation
deferral program established by IBM in November 1993.
1.15 "Domestic Subsidiary" shall mean a Subsidiary, organized and existing
under the laws of the United States or any state, territory, or
possession thereof; provided however, that the Plan shall not be deemed
to cover the employees of any Domestic Subsidiary unless authorized by
the Company's chief human resources officer.
1.16 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time.
1.17 "Effective Date" shall mean January 1, 1995.
1.18 "Eligible Employee" shall mean, for a calendar year, a domestic executive
employee of the Company who is eligible for the IBM Retirement Plan whose
annual rate of salary and annual incentive payment is expected to exceed
(or solely, for purposes of Section 3.03 did exceed in the immediately
preceding calendar year) the compensation limit under Code Sec-
tion 401(a)(17), as determined by the Committee in the relevant year.
1.19 "IBM" shall mean International Business Machines Corporation, any
predecessor, or any successor by merger, purchase, or otherwise.
1.20 "Participant" shall mean each Eligible Employee who has made the election
described in Section 2.02(a), is credited with an amount under Sec-
tion 3.03, or whose account balance under the Deferred Compensation Plan
has been transferred to the employee's Deferral Account under this Plan.
1.21 "Plan" shall mean this IBM Extended Tax Deferred Savings Plan, as now in
effect or as hereafter amended.
1.22 "Plan Administrator" shall mean a person or a committee appointed pursuant
to Article 7 which shall be responsible for reporting, recordkeeping, and
related administrative requirements. If appointed as a committee, any one
of the members of the committee may act individually on behalf of the
committee to fulfill the committee's duties. As of the Effective Date,
the Director of Executive Compensation has been appointed as the Plan
Administrator.
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Page 3
1.23 "Plan Year" shall mean the calendar year with the first Plan Year
commencing on January 1, 1995.
1.24 "Subsidiary" shall mean a corporation or other form of business organiza-
tion the majority interest of which is owned, directly or indirectly, by
the Company.
1.25 "TDSP" shall mean the International Business Machines Tax Deferred Savings
Plan, established by the Company by resolution of its Retirement Plans
Committee, effective July 1, 1983, as amended from time to time.
<PAGE>
Page 4
ARTICLE 2. PARTICIPATION
2.01 Eligibility
Eligibility is limited To US executive level Eligible Employees of IBM and
selected Domestic Subsidiaries whose rate of annual Compensation (defined
as salary and annual incentive rat,e) is $1S0,000 or more for calendar year
1995 (adjusted periodically thereafter based on industry trends and
government guidelines). For this purpose, "selected Domestic Subsidiaries"
and the "executive level" are defined by the chief human resources
officer in his or her sole discretion and is subject to change. The
Committee shall notify employees of their eligibility for participation in
the Plan as soon as practicable after the chief human resources officer
has made its determination that such employees qualify as Eligible
Employees for a calendar year.
2.02 Participation
(a) No later than one month before the first day of the calendar year during
which an Eligible Employee desires to have contributions credited on his
or her behalf pursuant to Section 3.01, an Eligible Employee must execute
a Deferral Election Agreement authorizing Deferrals under this Plan for
such year in accordance with the provisions of Section 3.0l.
(b) If an Eligible Employee becomes an employee of the Company during a
calendar year, he or she may execute a Deferral Election Agreement within
30 days of his or her date of hire. The Deferral Election Agreement shall
apply to Compensation earned by the Eligible Employee in the payroll
periods beginning after such agreement is submitted to the Committee.
(c) Each Deferral Election Agreement under the Plan shall be irrevocable for
the calendar year to which it relates.
(d) Irrespective of whether an employee has made the election described above,
any employee who has been selected by the Committee to have Company
Contributions credited on his or her behalf pursuant to Section 3.03 shall
be a Participant.
(e) As a condition to participation in the Plan, a Participant may also be
required by the Committee to provide such other information as the
Committee may deem necessary to properly administer the Plan.
<PAGE>
Page 5
ARTICLE 3. CONTRIBUTIONS
3.01 Amount of Deferral Contributions
For each payroll period that an Eligible Employee has Compensation
beginning on or after the effective date of an Eligible Employee's
Deferral Election Agreement, his or her Deferral Account shall be credited
with an amount of Deferrals. The amount of Deferrals shall be equal to
the designated percentage of Compensation elected by the Participant in
his or her Deferral Election Agreement. Under the Deferral Election
Agreement, the Eligible Employee may elect to forego receipt of amounts
equivalent to 1%, 2%, 3%, 4%, 5%, 6%, 7%, 8%, 9%, 10%, 11%, or 12% of the
Employee's Compensation for each pay period during which the election is
in effect, and in the event an Eligible Employee is a DCP Participant for
the calendar year, he or she may defer up to 100% of his or her annual
incentive payment for the calendar year.
Deferrals shall be made under this Section 3.01 shall commence for payroll
periods for a calendar year at such time as the Participant may no longer
actively participate in the TDSP for the calendar year (or would have been
unable to actively participate in the TDSP if the Participant was an
active participant in the TDSP for the calendar year) by reason of Code
Section 401(a)(17) or Code Section 401(a)(30) and has Compensation. No
Deferrals may be made hereunder prior to such time, except for the
deferral of a DCP Participant's annual incentive payment.
3.02 Matching Contributions
The amount of Company Matching Contributions credited to a Participant for
each payroll period shall be equal to 50% of the Participant's Deferrals
for the payroll period; provided however, that no Company Matching
Contributions will be made for a Participant's Deferrals in excess of 6%
of the Participant's Compensation for that payroll period. Company
Matching Contributions will be made in units of IBM Stock with no right to
transfer such units, except as otherwise provided in this Plan.
3.03 Additional Company Contributions
IBM may cause the Committee to credit on behalf of any Participant or any
Eligible Employee who is not yet a Participant for a particular calendar
year an additional amount of Company Matching Contributions or other
Company Contributions, which will be made only in units of IBM Stock with
no right to transfer such units, except as otherwise provided in this
Plan; provided however, that any employee who was not eligible for a given
calendar year because his or her rate of Compensation was expected to be
below the $150,000 threshold (as adjusted) will nonetheless be credited
with Company Matching Contributions (but may not make Elective Deferrals)
under the Plan without any further action by IBM or the Committee, based
upon such employee's Elective Deferral rate under the TDSP at the end of
<PAGE>
Page 6
the calendar year, if the employee's actual Compensation for that calendar
year exceeds $150,000 (as adjusted and only to the extent that the Company
Matching Contributions would have been at least $300).
3.04 Investment of Accounts
A Participant's Deferral Account shall be treated as if the Participant
had invested it in certain TDSP investment Funds in accordance with
Article 4. A Participant's Company Account shall be treated as if it had
been invested in the IBM Stock Fund under the TDSP; provided however, that
in the event a Participant retires from the Company and does not elect to
have the entire amount of his or her Accounts then paid to him or her, any
amounts credited to the Participant's Company Account after retirement
will be treated as if they were transferred to the Participant's Deferral
Account for purposes of this Section 3.04 and Article 4.
3.05 Vesting of Accounts
A Participant always shall be fully vested in his or her Accounts.
3.06 Individual Accounts
The Committee shall maintain, or cause to be maintained, records showing
the individual balances of each Participant's Accounts. Periodically,
each Participant shall be furnished with a statement setting forth the
value of his or her Accounts.
<PAGE>
Page 7
ARTICLE 4. INVESTMENT OF DEFERRALS AND DEFERRAL ACCOUNTS
4.01 Deemed TDSP Investments; Participant Control
A Participant shall designate the proportions in which his or her
Deferrals shall be treated as if they had been allocated among certain
Investment Funds under the TDSP. Those Investment Funds are:
(a) The Fixed Income Fund
This fund's objective is to preserve principal (the amount invested)
and to provide a relatively stable rate of interest. Under TDSP,
the fund invests in interest-bearing instruments, including
contracts with highly rated insurance companies, banks, and other
financial institutions.
(b) The Large Company Index Fund
This fund is for investors seeking long-term growth of capital by
achieving a market rate of return from a diversified group of large-
and medium-sized company common stocks in the United States. Under
TDSP, the fund invests in a broad range of common stocks to produce
investment results approximating the price and yield performance of
Standard & Poor's 500 Index.
(c) The Small Company Stock Fund
Investors who would like to pursue long-term capital growth from a
diversified group of small- and medium-sized company common stocks
in the United States may want to consider this fund. Under TDSP,
the fund seeks to produce results that substantially duplicate the
price and yield performance of small- and medium-sized company
stocks generally not represented in the Standard & Poor's 500 Index.
(d) The International Stock Fund
This fund is for aggressive investors seeking long-term capital
appreciation and diversification through investments in stocks based
outside of the United States. Under TDSP, the fund invests in
equity market investments outside North America, based on the Morgan
Stanley Capital International Europe, Australia, and Far East (EAFE)
Index, with a modified country weighting that limits investments in
securities of any one country to approximately 25% of the fund.
(e) The IBM Stock Fund
The IBM Stock Fund will appeal to aggressive investors looking for
capital appreciation from a single stock investment. The objective
of the fund is participation in IBM's future stock performance. IBM
corporate officers who elect this investment are subject to such
<PAGE>
Page 8
restrictions which are necessary for compliance with securities laws.
The Committee may, in its discretion (which discretion may be delegated to
the Treasurer or other executive officer of IBM), from time to time make
additional TDSP Investment Funds available as an investment measure under
this Plan and may determine that any TDSP Investment Fund, including any
of the Funds described above, may be terminated as an investment measure
under this Plan.
A Participant may elect to invest his or her Deferrals entirely in any one
of the funds or may elect any combination in 5% multiples.
4.02 Change of Investment Selection on Future Deferrals
A Participant may elect to change his or her investment selection for
future Deferrals once per month. The Participant must make this election
in the manner prescribed by the Committee.
4.03 Change of Investment Selection on Existing Deferral Accounts
With regard to a Participant's existing Deferral Account balance, a
Participant may elect to transfer balances among the Investment Funds once
per month; provided however, that the portion of the Deferral Account of
a Company officer that is allocated to the IBM Stock Fund may not be
transferred to another Investment Fund while the officer remains in
Company employment. Any permissible transfers, if among more than one
Investment Fund, must be made in 5% multiples. The Participant must make
this election in the manner prescribed by the Committee, and the Committee
may impose such additional rules and limitations upon transfers between
Investment Funds as the Committee may consider necessary or appropriate.
<PAGE>
Page 9
ARTICLE 5. PAYMENT OF ACCOUNTS
5.01 Commencement of Deferral Payments
A Participant shall be entitled to receive payment of his or her Accounts
upon the Participant's (1) termination of employment from the Company for
any reason other than retirement from the Company or (2) retirement from
the Company with a balance of less than $25,000 in his or her Accounts.
Any other Participant who is a DCP Participant and who has a termination
of employment from the Company while a DCP Participant or any other
Participant who retires from the Company shall be entitled to receive
payment of his or her Accounts during the January following the calendar
year during which the Participant had a termination of employment from the
Company.
5.02 Method of Payment
Payment of Accounts shall be made in a single lump sum payment.
Notwithstanding the foregoing, a Participant with a balance of at least
$25,000 in his or her Accounts who either retires from the Company or is
a DCP Participant for the calendar year in which he or she no longer works
for the Company may elect to receive (1) a lump sum payment upon his or
her termination of employment from the Company or (2) up to ten ratable
annual installment payments of the balance in his or her Accounts
commencing during the January following the calendar year during which the
Participant had a termination of employment from the Company. For this
election to be effective, at least one full calendar year must pass
between the calendar year the Participant makes the election and the
calendar year the Participant has a termination of employment from the
Company. The Participant must make this election in the manner prescribed
by the Committee.
Upon application of a Participant, the Committee may authorize earlier
payment to the Participant after termination of employment with the
Company of an amount reasonably needed to satisfy the emergency need
caused by an unforeseeable emergency that causes severe financial hardship
to the Participant. If a Participant dies before payment of the entire
balance of his or her Accounts, an amount equal to the unpaid portion
thereof as of the date of his or her death shall be payable in one lump
sum to his or her Beneficiary.
5.03 Designation of Beneficiary
Each Participant's Beneficiary under this Plan shall automatically be the
person or persons designated as the Participant's beneficiary under the
TDSP even if such designation is found to be invalid under the provisions
of ERISA or the Code. Such Beneficiary shall be entitled to receive the
lump sum amount, if any, payable under the Plan upon the Participant's
death pursuant to this Section 5.03 (except if that Participant was a DCP
Participant and had made an election pursuant to Section 5.02); provided
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Page 10
however, that the beneficiary is alive at the time of the Participant's
death. If no such Beneficiary designation is in effect at the time of the
Participant's death, or if no designated Beneficiary survives the
Participant, the Participant's Beneficiary shall be deemed to be the
Participant's beneficiary under IBM's Group Life Insurance Plan.
<PAGE>
Page 11
ARTICLE 6. GENERAL PROVISIONS
6.01 Funding
(a) All amounts payable in accordance with this Plan shall constitute a
general unsecured obligation of the Company. Such amounts, as well as any
administrative costs relating to the Plan, shall be paid out of the
general assets of the Company, to the extent not paid by a grantor trust
established pursuant to paragraph (b) below. In the sole discretion of
the Committee, a Participant's Accounts may be reduced to reflect
allocable administrative expense.
(b) IBM may, for administrative reasons, establish a grantor trust for the
benefit of Participants participating in the Plan. The assets of said
trust will be held separate and apart from other Company funds and shall
be used exclusively for the purposes set forth in the Plan and the
applicable trust agreement, subject to the following conditions:
(i) The creation of said trust shall not cause the Plan to be other
than "unfunded" for purposes of Title I of the Employee Retirement
Income Security Act of 1974, as amended;
(ii) The Company shall be treated as "grantor" of said trust for
purposes of Section 677 of the Code; and
(iii) Said trust agreement shall provide that its assets may be used to
satisfy claims of the Company's general creditors in the event of
its insolvency, and the rights of such general creditors are
enforceable by them under federal and state law.
(c) Neither the Company nor the Committee guarantees the investment alterna-
tives available under the Plan in any manner against loss or depreciation.
6.02 No Contract of Employment
Nothing herein contained shall be deemed to give any employee the right to
be retained in the service of the Company or an Affiliate or to interfere
with the right of the Company or an Affiliate to discharge any employee at
any time without regard to the effect that such discharge may have upon
the employee under the Plan. Nothing appearing in or done pursuant to the
Plan shall be held or construed to create a contract of employment with
the Company, to obligate the Company to continue the services of any
Employee, or to affect or modify any Employee's terms of employment in any
way or to give any person any legal or equitable right or interest in the
Plan or any part thereof or distribution therefrom or against the Company
except as expressly provided herein.
<PAGE>
Page 12
6.03 Facility of Payment
In the event the Plan Administrator determines that any Participant or
Beneficiary receiving or entitled to receive benefits under the Plan is
incompetent to care for his or her affairs and in the absence of the
appointment of a legal guardian of the property of the incompetent,
benefit payments due under the Plan (unless prior claim thereto has been
made by a duly qualified guardian, committee, or other legal representa-
tive) may be made to the spouse, parent, brother or sister, or other
person, including a hospital or other institution, deemed by the Plan
Administrator to have incurred or to be liable for expenses on behalf of
such incompetent. In the absence of the appointment of a legal guardian
of the property of a minor, any minor's share of benefits payable under
the Plan may be paid to such adult or adults as in the opinion of the Plan
Administrator have assumed the custody and principal support of such
minor.
The Plan Administrator, however, in its sole discretion, may require that
a legal guardian for the property of any such incompetent or minor be
appointed before authorizing the payment of benefits in such situation.
Benefit payments made under the Plan in accordance with determinations of
the Plan Administrator pursuant to this Article 6 shall be a complete
discharge or any obligation arising under the Plan with respect to such
benefit payments.
6.04 Withholding Taxes
The Plan Administrator shall have the right to withhold all applicable
taxes or other payments from benefits hereunder and to report information
to government agencies when required to do so by law.
6.05 Nonalienation
No benefits payable under the Plan shall be subject to alienation, sale,
transfer, assignment, pledge, attachment, garnishment, lien, levy, or like
encumbrance. No benefit under the Plan shall in any manner be liable for
or subject to the debts or labilities of any person entitled to benefits
under the Plan.
6.06 Administration
A11 decisions, determinations, or interpretations the Board, the
Committee, the Plan Administrator, the Company or any member, officer or
employee thereof are authorized to make under the Plan (including the
delegation of any authority hereunder to another party) shall be made in
that party's sole discretion and shall be final, binding, and conclusive
on all interested persons.
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Page 13
6.07 Construction
The Plan is intended to constitute an unfunded deferred compensation
arrangement for a select group of management or highly compensated
employees, and all rights hereunder shall be governed by and construed in
accordance with the laws of the State of New York to the extent not
governed by the Employee Retirement income Security Act of 1974, as
amended.
<PAGE>
Page 14
ARTICLE 7. MANAGEMENT AND ADMINISTRATION
7.01 Amendment or Termination
This Plan may be amended from time to time for any purpose permitted by
law or terminated at any time by written resolution of the Board or the
Committee, but only if the Committee's action is not materially inconsis-
tent with a prior action of the Board.
The authority to amend or terminate the Plan shall include the authority
to amend the procedure for amending or terminating the Plan and the
authority to amend or terminate any related instrument or agreement.
7.02 Responsibilities
(a) The following persons and groups of persons shall severally have the
authority to control and manage the operation and administration of the
Plan as herein delineated:
(i) the Board,
(ii) the Committee,
(iii) the chief human resources officer, and
(iv) the Plan Administrator and each person on any committee serving as
the Plan Administrator.
Each person or group of persons shall be responsible for discharging only
the duties assigned to it by the terms of the Plan.
(b) The Board shall be responsible only for designating those persons who will
serve on the Committee and for approval of any resolution to amend or
terminate the Plan.
(c) The Committee may, pursuant to a duly adopted resolution, delegate to the
chief financial officer or the chief human resources officer, the
Treasurer, the Plan Administrator or any other officer or employee of IBM,
authority to carry out any decision, directive, or resolution of the
Committee.
(d) The Committee shall appoint one or more executives employed by IBM to
serve as Plan Administrator or as a committee to fulfill the function of
Plan Administrator. In the sole discretion of the Plan Administrator, the
Plan Administrator shall have the full power and authority to:
(i) promulgate and enforce such rules and regulations as shall be deemed
be necessary or appropriate for the administration of the Plan;
(ii) adopt any amendments to the Plan that are required by law;
(iii) interpret the Plan consistent with the terms and intent thereof; and
(iv) resolve any possible ambiguities, inconsistencies, and omissions.
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Page 15
All such determinations and interpretations shall be in accordance with
the terms and intent of the Plan, and the Plan Administrator shall report
such actions to the Committee on a regular basis. Additionally, the chief
human resources officer shall appoint and designate such other IBM
employees as may be needed to provide adequate staff services to the
Committee and the Plan Administrator.
(e) The Committee and the Plan Administrator may engage the services of
accountants, attorneys, actuaries, investment consultants, and such other
professional personnel as are deemed necessary or advisable to assist them
in fulfilling their responsibilities under the Plan. The Committee, the
Plan Administrator, and their delegates and assistants will be entitled to
act on the basis of all tables, valuations, certificates, opinions, and
reports furnished by such professional personnel.
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Page 16
ARTICLE 8. CLAIMS PROCEDURE
IBM's Executive Compensation Department is responsible for advising Participants
and Beneficiaries of their benefits under the Plan. In the event a Participant
or Beneficiary believes he or she is entitled to benefits and has not received
them, the Participant or Beneficiary must submit a claim to the Director of
Executive Compensation, IBM Corporation, Old Orchard Road, Armonk, New York
10504. A written decision setting forth its conclusions will be furnished by the
Plan Administrator to the Participant or Beneficiary within 60 days after the
request for review is received. Failure of the Plan Administrator to follow this
procedure shall not, in and of itself, give rise to a cause of action for
benefits hereunder.
EXHIBIT XI
As amended, restated, and combined
on July 27, 1993
IBM Board of Directors
Deferred Compensation and Equity Award Plan
-------------------------------------------
ARTICLE I. Purpose
-------
International Business Machines Corporation ("IBM") has
established, pursuant to resolutions adopted on July 27, 1993,
the Deferred Compensation and Equity Award Plan (the "Plan") to
amend, restate and combine the Deferred Compensation Plan
("DCP") and Restricted Equity Award Plan ("REAP") of the Board
of Directors, to enable members of the Board of Directors (the
"Board") who are not then IBM employees ("Outside Directors")
to defer receipt of compensation for the services of Outside
Directors to later years and to provide part of the
compensation for the services of Outside Directors in a promise
to deliver shares of IBM Capital Stock ("Shares").
ARTICLE II. Maintenance of Records
----------------------
IBM shall maintain three bookkeeping accounts for each Outside
Director, a Cash Account, a Promised Fee Shares Account, and a
Promised Award Shares Account, which shall be credited in
accordance with the terms of this Plan and the elections of
each Outside Director pursuant to this Plan.
ARTICLE III. Promised Award Shares
---------------------
(a) Initial Awards
--------------
An Initial Award of a promise by IBM to deliver one
hundred Shares, pursuant to ARTICLE VII hereof, to an
Outside Director ("Promised Award Shares") shall be
made to any newly-elected Outside Director upon his
or her election to the Board.
(b) Annual Awards
-------------
Each year, on the first day of the month following
the annual meeting of IBM stockholders held pursuant
to IBM's By-laws, each Outside Director who was
elected at such annual meeting (including
newly-elected Outside Directors) shall receive an
Annual Award of one hundred Promised Award Shares.
(c) Voting Rights
-------------
Promised Award Shares do not have voting rights.
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<PAGE>
(d) Promised Award Shares Account
-----------------------------
Promised Award Shares shall be credited to the
Promised Award Shares Account.
ARTICLE IV. Deferral of Fees
----------------
(a) Eligibility and Election
------------------------
Any Outside Director may elect to defer receipt of
all or any portion of the other compensation for
services ("Fees") to be earned by such Outside
Director by indicating such election to the Secretary
of IBM on an Election Form supplied by the Secretary
("Deferral Election"). The Outside Director's
election must specify (i) the portion of the Fees to
be deferred, (ii) the "Deferral Period" (a minimum of
one "Election Term"), (iii) the choice of deferral in
cash or a promise by IBM to deliver Shares ("Promised
Fee Shares"), pursuant to ARTICLE VII hereof, and
(iv) the time(s) of payment or delivery. Each
Deferral Election is irrevocable with respect to the
Fees payable for the Deferral Period to which it
applies.
"Deferral Period" shall mean, with respect to a
Deferral Election, the period of Fee payments that
are being deferred pursuant to such Deferral
Election.
"Election Term" shall mean the period beginning on
the date an Outside Director is elected to the Board
and ending on the date of the next succeeding Annual
Meeting of IBM Stockholders.
(b) Credit for Amounts Deferred
---------------------------
(i) The Cash Account will be credited with the
amount of Fees accrued during a Deferral Period
and deferred as cash (such credit to be made
when such Fees become payable), plus interest at
an annual rate equal to the average of the first
26-week Treasury Bill issued in January and July
of each year, computed from the date such Fees
would have been paid had they not been deferred.
(ii) The Promised Fee Shares Account will be
credited with the number of Shares, including
fractions, which could have been purchased had
the amount of the Fees accrued during a Deferral
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<PAGE>
Period and deferred as Promised Fee Shares been
used to purchase Shares on the date such Fees
would have been paid had they not been deferred,
at a price equal to Fair Market Value on such
date.
(iii) "Fair Market Value" shall be the average
of the high and low prices of Shares on the New
York Stock Exchange on the date in question,
provided that if no sales of Shares were made on
said Exchange on that date, the average of the
high and low prices reported for the preceding
day on which sales of Shares were made on said
Exchange.
(iv) Promised Fee Shares do not have voting
rights.
(c) Advance Notice of Election
--------------------------
Any Deferral Election with respect to Fees to be
earned during an Election Term shall be
delivered to the Secretary of IBM:
(i) in the case of Fees deferred and
to be recorded in the Cash Account, on or
before the date 30 days prior to the first
date of such Election Term or, with respect
to a new Outside Director, before the first
date of such Election Term; or
(ii) in the case of Fees deferred and
to be recorded in the Promised Fee Shares
Account, on or before the date six months
prior to the first date of such Election
Term or, with respect to a new Outside
Director, before the first date of such
Election Term.
(d) Duration of Election
--------------------
A Deferral Election may be made annually for the
succeeding Election Term or, at the Outside
Director's direction, shall continue from
Election Term to Election Term unless a written
request to modify or terminate that election for
subsequent Election Terms is submitted to the
Secretary of IBM on or before the date six
months prior to the first date of the first such
subsequent Election Term, provided that such
--------
six-month period may be reduced to 30 days if
-3-
<PAGE>
neither the Deferral Election being modified or
terminated nor the modified Deferral Election
provides for a deferral of Fees as Promised Fee
Shares during such first Election Term.
(e) Financial Hardship
------------------
In the event that an Outside Director incurs a
severe financial hardship, the Outside
Director's deferral schedule with respect to his
or her Cash Account or Promised Fee Shares
Account shall be revised by the Board (or an
authorized Committee of the Board) to the extent
reasonably necessary to eliminate the severe
financial hardship. Such severe financial
hardship must be caused by an accident, illness,
or event beyond the control of the Outside
Director.
(f) Conversion of DCP Elections
---------------------------
Ongoing elections under the DCP to defer Fees as
share units and/or cash shall be continued and
converted to elections to defer Fees into a
Promised Fee Shares Account and/or a Cash
Account, respectively, under the Plan, except to
the extent the Outside Director elects prior to
July 27, 1993 to change such an election to
defer Fees into share units into an election to
defer Fees into the Cash Account.
ARTICLE V. Dividends, Distributions and Adjustments
----------------------------------------
Whenever a cash dividend or any other
distribution is paid with respect to Shares, the
Promised Fee Shares Account and Promised Award
Shares Account of each Outside Director shall be
credited with an additional number of Promised
Fee Shares or Promised Award Shares, as
applicable, equal to the number of Shares,
including fractional Shares, that could have
been purchased had such dividend or other
distribution been paid on each Promised Fee
Share in the Promised Fee Shares Account and
Promised Award Share in the Promised Award
Shares Account (on the record date for such
dividend or distribution) and the amount of such
dividend or value of such other distribution
been used to acquire additional Shares at the
Fair Market Value on the date such dividend or
-4-
<PAGE>
other distribution is paid. The value of any
such other distribution on or related to Shares
shall, at the option of the Board (or an
authorized Committee of the Board), be either
determined by the Board or independently
established.
The number of Promised Award Shares and Promised
Fee Shares shall be fully adjusted upon the
occurrence of any stock split, stock dividend,
combination or reclassification,
recapitalization, merger or similar event, and
shall be appropriately adjusted for the value
(determined in the manner provided above with
respect to distributions) of any right,
privilege or opportunity provided or offered by
IBM to holders of Shares.
ARTICLE VI. Conversion of REAP and DCP Shares Account
-----------------------------------------
Balances
--------
The amount in the account of an Outside Director as of July 27,
1993 under the DCP in units equivalent to a number of Shares
(including fractions of Shares) and payable in cash only
("units") shall be converted under the Plan as of July 27, 1993
to an amount in the same number of Shares (including fractions
of Shares) credited to the Outside Director's Promised Fee
Shares Account, unless the Outside Director elects prior to
July 27, 1993 to convert the units as of July 27, 1993 into
credits in the Cash Account.
The number of Shares in the escrow account of an Outside
Director as of July 27, 1993 under the REAP shall be converted
under the Plan as of July 27, 1993 to an equal number of
Promised Award Shares credited to the Outside Director's
Promised Award Shares Account.
An Outside Director's cash account balance under the DCP as of
July 27, 1993 will be converted to an equivalent balance under
the Outside Director's Cash Account under the Plan as of
July 27, 1993.
ARTICLE VII. Delivery
--------
Delivery of amounts from the Cash Account and Shares from the
Promised Award Shares Account and Promised Fee Shares Account
will be made to an Outside Director in accordance with his or
her applicable Deferral Elections or, if no election applies,
promptly after the date on which the Outside Director ceases to
-5-
<PAGE>
be a member of the Board; provided, that when an Outside
--------
Director terminates service on account of any act of (i) fraud
or intentional misrepresentation or (ii) embezzlement,
misappropriation or conversion of assets or opportunities of
IBM or any direct or indirect majority-owned subsidiary of IBM,
Promised Award Shares credited to such Outside Director's
Promised Award Shares Account shall be forfeited.
In the event of an Outside Director's death, such Outside
Director's estate or beneficiary, as appropriate, shall be paid
the amount credited to his or her Cash Account and an amount
equal to the Fair Market Value on the date of death of the
Promised Award Shares and Promised Fee Shares credited to his
or her Promised Award Shares Account and Promised Fee Shares
Account.
Upon becoming entitled to receive Shares, an Outside Director
may elect to receive in lieu thereof a cash payment. In the
case of Shares to be delivered pursuant to a Deferral Election,
the cash payment shall be equal to the Fair Market Value of the
Shares on the delivery date specified in the Deferral Election.
In the case of shares to be delivered promptly after the date
on which a Director ceases to be a member of the Board, the
cash payment shall be equal to the Fair Market Value of the
Shares on the first day after such date. In any case when
Shares are to be delivered, a cash payment will be so made in
lieu of delivering a fractional Share.
ARTICLE VIII. Source of Shares
----------------
45,000 Shares as of July 27, 1993, plus an additional 20,000
Shares as of May 1, 1994, and as of each May 1 thereafter,
shall be reserved and authorized for delivery under the Plan
from time to time. These Shares may be provided from
newly-issued or repurchased Shares. If any change is made in
the number of Shares outstanding or in the rights of such
outstanding Shares (such as by stock split, stock dividend,
combination or reclassification, recapitalization, merger or
similar event), the Board (or an authorized Committee of the
Board) may make such adjustments in the number of or rights
relating to Shares authorized to be delivered pursuant to the
Plan as the Board (or such Committee) determines is equitable
to preserve the respective rights of the participants in the
Plan. Shares forfeited under the Plan or settled in cash in
lieu of delivery shall not reduce the number of Shares
authorized under the Plan and shall not be deemed to have been
delivered under the Plan; provided, that the number of Shares
--------
settled in cash in lieu of delivery shall not exceed the
cumulative number of Shares authorized for delivery under the
Plan (without deduction for Shares delivered).
-6-
<PAGE>
ARTICLE IX. Alienability
------------
No amount due or payable under the Plan or any interest in the
Plan, shall be subject in any manner to alienation, sale,
transfer, assignment, pledge, attachment, garnishment, lien,
levy or like encumbrance. No such amount shall in any manner
be liable for or subject to the debts or liability of any
Outside Director. Prior to delivery of Shares by IBM pursuant
to Article VII, no director shall have any right to transfer or
assign any Share, or any right to receive any Share, credited
to him under this Plan. Any purported assignment shall be null
and void.
ARTICLE X. Outside Director's Rights Unsecured
-----------------------------------
The right of an Outside Director to receive any cash payment or
Shares hereunder shall rank as an unsecured claim against IBM.
Assets that may be set aside for IBM's convenience with respect
to the Plan shall not in any way be held in trust for, or be
subject to any prior claim by, an Outside Director or
beneficiary.
ARTICLE XI. Effective Date
--------------
The Plan shall become effective on July 27, 1993.
ARTICLE XII. Amendment and Termination
-------------------------
The Board or any authorized Committee of the Board may at any
time terminate, and may at any time and from time to time and
in any respect amend, the Plan for any reason; provided that
--------
the Plan may not be amended more than once every six months,
other than to comport with changes in the Internal Revenue Code
of 1986, as amended, the Employee Retirement Income Security
Act of 1974, or the rules thereunder.
-7-
EXHIBIT VI
FINANCIAL HIGHLIGHTS
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
(Dollars in millions except per
share amounts) 1994 1993
For the Year:
Revenue $ 64,052 $ 62,716
Earnings (loss) before income taxes $ 5,155 $ (8,797)
Income taxes $ 2,134 $ (810)
Net earnings (loss) before change
in accounting principle $ 3,021 $ (7,987)
Per share of common stock $ 5.02 $ (14.02)
Effect of change in accounting
principle* $ -- $ (114)
Per share of common stock $ -- $ (.20)
Net earnings (loss) $ 3,021 $ (8,101)
Per share of common stock $ 5.02 $ (14.22)
Cash dividends paid on common stock $ 585 $ 905
Per share of common stock $ 1.00 $ 1.58
Investment in plant, rental
machines and other property $ 3,078 $ 3,232
Average number of common shares
outstanding (in millions) 585 573
At End of Year:
Total assets $ 81,091 $ 81,113
Net investment in plant, rental
machines and other property $ 16,664 $ 17,521
Working capital $ 12,112 $ 6,052
Total debt $ 22,118 $ 27,342
Stockholders' equity $ 23,413 $ 19,738
Number of regular, full-time employees 219,839 256,207
Number of stockholders 713,060 741,047
*1993 cumulative effect of Statement of Financial Accounting Standards
(SFAS) 112, "Employers' Accounting for Postemployment Benefits."
<PAGE>
FINANCIAL REPORT
34} REPORT OF MANAGEMENT
35} REPORT OF INDEPENDENT ACCOUNTANTS
36} MANAGEMENT DISCUSSION
48} CONSOLIDATED FINANCIAL STATEMENTS
Operations
Financial Position
Cash Flows
Stockholders' Equity
52} 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 Debt
H Taxes
I Research, Development and Engineering
J Restructuring Actions
K Interest on Debt
L Other Liabilities and Environmental
M Contingencies
N Customer Financing
O Rental Expense and Lease Commitments
P Long-Term Performance Plan
Q Stock Purchase Plan
R Retirement Plans
S Nonpension Postretirement Benefits
T Lines of Credit
U Sales and Securitization of Receivables
V Preferred Stock
W Financial Instruments
X Segment Information
Y Geographic Areas
Z Subsequent Events
79} FIVE-YEAR COMPARISON OF SELECTED
FINANCIAL DATA
79} SELECTED QUARTERLY DATA
80} IBM BOARD OF DIRECTORS AND MANAGEMENT
81} SHAREHOLDER INFORMATION
33
<PAGE>
REPORT OF MANAGEMENT
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
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 LLP, independent accountants, is 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.
Louis V. Gerstner, Jr. Jerome B. York
Chairman of the Board Senior Vice President
and Chief Executive Officer and Chief Financial Officer
34
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
To the Stockholders and Board of Directors of International Business Machines
Corporation:
In our opinion, the accompanying consolidated financial statements, appearing on
pages 48 through 78, present fairly, in all material respects, the financial
position of International Business Machines Corporation and its subsidiaries at
December 31, 1994 and 1993, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1994, 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 of 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 53 and 54, the company
changed its methods of accounting for postemployment benefits in 1993 and income
taxes in 1992. We concur with these changes.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
January 20, 1995
35
<PAGE>
MANAGEMENT DISCUSSION
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
overview
IBM has made substantial progress during 1994 in stabilizing its operations,
rebuilding its balance sheet, improving its cost structure, and increasing
shareholder value. The actions taken during the past two years to "right-size"
the company have improved IBM's competitiveness in the rapidly changing market
for information technology products and services. As a result, the company
returned to profitability for the first time since 1990.
Overall, the company's hardware offerings remain under price and competitive
pressure. Revenue growth was strong for RISC System/6000* products,
merchant-market semiconductors, and Original Equipment Manufacturer (OEM) files,
while Application System/400* (AS/400) products showed moderate growth. Although
mainframe processor revenue declined, it was stronger than expected. In
addition, introduction of CMOS technology is progressing well and the broader
use of these products in parallel processing is expected to continue. Personal
computer revenue grew, but at a slower rate than certain competitors and the
industry as a whole. The company believes that the restructuring actions taken
this year will, in the long run, lead to improved performance in this area. It
is also anticipated that the pressures on price and margin will remain for all
hardware offerings. The company's services offerings continue to grow rapidly,
but remain at margins lower than the company's traditional hardware offerings.
While much progress has been made, IBM must continue its pace of change as it
focuses increasingly on revenue growth, improving the time to market with new
products, re-engineering its business processes, and reducing its cost and
expense structure.
results of operations
<TABLE>
<S> <C> <C> <C>
(Dollars in millions) 1994 1993 1992
Revenue $ 64,052 $ 62,716 $ 64,523
Cost 38,768 38,568 35,069
-------------- -------------- --------------
Gross profit 25,284 24,148 29,454
Total expense without restructuring charges 20,129 24,000 26,835
Restructuring charges - 8,945 11,645
-------------- -------------- ---------------
Net earnings (loss) before income taxes $ 5,155 $ (8,797) $ (9,026)
-------------- -------------- ---------------
Net earnings (loss) $ 3,021 $ (8,101) $ (4,965)
-------------- -------------- ---------------
Gross profit margin 39.5% 38.5% 45.6%
</TABLE>
Revenue as reported in the United States was $24.1 billion, a decrease of 6.2
percent compared to 1993. When adjusted for the Federal Systems Company (FSC)
sale, which is discussed on page 47, U.S. revenue grew 3.0 percent in 1994,
following a 4.3 percent increase in 1993 over 1992. Revenue from Europe was
$23.0 billion, an increase of 5.8 percent over 1993, following a 12.8 percent
decrease in 1993 from 1992. Asia-Pacific revenue grew 13.4 percent to $11.4
billion compared to 1993, following a 3.6 percent increase over 1992 levels.
Revenue from Canada was $2.5 billion, an increase of 15.8 percent over 1993,
following a 6.1 percent decrease
36
<PAGE>
MANAGEMENT DISCUSSION
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
in 1993 versus 1992. Latin America revenue decreased .7 percent to $3.0 billion
in 1994, following a 3.7 percent increase in 1993 over 1992.
The overall gross profit margin has been relatively stable for the last two
years at approximately 39 percent. The gross profit margins continue to be
affected by hardware pricing pressures and the company's shift to services
revenue, which has lower gross profit margins than its hardware offerings.
The company reported net earnings of $3,021 million ($5.02 per common share), a
net loss of $8,101 million ($14.22 per common share), and a net loss of $4,965
million ($8.70 per common share) for 1994, 1993, and 1992, respectively.
When adjusted for the FSC sale ($248 million or $.43 per common share) and the
effect of increased amortization resulting from the change in software
amortization periods ($192 million or $.33 per common share), net earnings for
1994 were $2,965 million ($4.92 per common share). This compares to a full-year
1993 net loss of $96 million ($.25 per common share) excluding the FSC results
($105 million or $.18 per common share), the effects of a restructuring charge
of $7,996 million ($14.02 per common share), 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." In 1992, the company had
net earnings of $1,328 million ($2.32 per common share) after excluding
the FSC results of $89 million ($.16 per common share), the effects of a
restructuring charge of $8,282 million ($14.51 per common share), and the
cumulative benefit to earnings of $1,900 million ($3.33 per common share) as a
result of the company's adoption of SFAS 109, "Accounting for Income Taxes."
hardware sales
(Dollars in millions) 1994 1993 1992
Total revenue $ 32,344 $ 30,591 $ 33,755
Total cost 21,300 20,696 19,698
------------- ------------- -------------
Gross profit $ 11,044 $ 9,895 $ 14,057
------------- ------------- -------------
Gross profit margin 34.1% 32.3% 41.6%
Worldwide revenue from hardware sales increased 5.7 percent from 1993, following
a decrease of 9.4 percent in 1993 from 1992. Worldwide gross profit dollars from
hardware sales increased 11.6 percent from 1993, following a decrease of 29.6
percent in 1993 from 1992.
Revenue from processors decreased 2.8 percent from 1993, following a 27.6
percent decrease in 1993 from 1992. These decreases were primarily due to
declines in System/390* processor revenue, resulting from continuing
competitive pricing pressures associated with these products. AS/400 product
revenue grew in 1994 over 1993, as the new advanced series processors
showed strong growth. AS/400 product revenue declined in 1993 from 1992,
primarily in Europe, due to lower volumes.
37
<PAGE>
MANAGEMENT DISCUSSION
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
Personal systems revenue grew 14.2 percent in 1994 over 1993, following a 27.6
percent increase in 1993 over 1992. The increases resulted from higher revenue
from personal computers and strong growth for the RISC System/6000 products.
The personal computer revenue continues to reflect severe price competition.
Storage products revenue decreased 26.1 percent in 1994 from 1993, following a
decrease of 21.2 percent in 1993 from 1992. These declines were a result of
continuing price competition across most storage products.
OEM hardware revenue grew 151.2 percent in 1994 over 1993, following a 132.1
percent increase in 1993 over 1992. These increases are primarily attributable
to increased sales of merchant-market semiconductors and low-end storage files.
Information on revenue by classes of similar products or services is included on
pages 74 and 75. The product trends demonstrated in this discussion and in that
disclosure are indicative, in all material respects, of hardware sales activity.
The increase in hardware sales gross profit margin in 1994 was primarily driven
by cost improvements in System/390 processors, offset by lower personal computer
margins resulting from price pressures. Although the overall hardware margin
increased, it continued to be impacted by pricing pressures on high-end products
and personal computers. The decrease in 1993 gross profit margin from 1992
reflected pricing pressures on high-end products and personal computers. In
addition, personal computer revenue, which carries a lower gross profit margin,
was a proportionally larger part of hardware sales.
software
(Dollars in millions) 1994 1993 1992
Total revenue $ 11,346 $ 10,953 $ 11,103
Total cost 4,680 4,310 3,924
------------- ------------- -------------
Gross profit $ 6,666 $ 6,643 $ 7,179
------------- ------------- -------------
Gross profit margin 58.8% 60.7% 64.7%
Software revenue increased 3.6 percent in 1994 from 1993, following a decline of
1.4 percent in 1993 from 1992. The increase in 1994 was primarily due to higher
one-time-charge revenue associated with RISC System/6000 computer placements.
The decline in 1993 was primarily a result of lower one-time-charge revenue
reflecting decreased AS/400 computer placements.
Software gross profit dollars increased .3 percent in 1994 from 1993, following
a decrease of 7.5 percent in 1993 from 1992. The 1994 software gross profit
dollars and margin were affected by a change in the company's software
amortization periods effective January 1, 1994. This change was a result of a
continuing review of the company's portfolio of software offerings, software
amortization periods, and recoverability of the capitalized investment in
software products. The change reduced amortization periods to a maximum of four
years to recognize more rapid advances in software technology and thus a shorter
period over which to recover capitalized costs. This change resulted in
increased amortization costs after tax of $192 million ($.33 per common
share). Excluding the effects of this change, gross profit dollars would have
increased 4.8 percent and the gross
38
<PAGE>
MANAGEMENT DISCUSSION
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
profit margin would have been 61.4 percent in 1994. The decrease in gross profit
margin in 1993 from 1992 was partially a result of lower one-time-charge revenue
as previously discussed and a higher level of program product write-offs that
were recorded as a result of the continuing review of the company's portfolio of
software offerings. Write-offs in 1994, 1993, and 1992, excluding the effects of
changes in amortization lives, were $491 million, $327 million, and $62 million,
respectively.
services
<TABLE>
<S> <C> <C> <C>
(Dollars in millions) 1994 1993 1992
Services $ 9,715 $ 7,648 $ 5,530
Federal Systems Company -- 2,063 1,822
------------ ------------ ------------
Services revenue excluding maintenance 9,715 9,711 7,352
Cost 7,769 8,279 6,051
------------ ------------ ------------
Gross profit $ 1,946 $ 1,432 $ 1,301
------------ ------------ ------------
Gross profit margin 20.0% 14.7% 17.7%
Maintenance revenue $ 7,222 $ 7,295 $ 7,635
Cost 3,635 3,545 3,430
------------ ------------ ------------
Gross profit $ 3,587 $ 3,750 $ 4,205
------------ ------------ ------------
Gross profit margin 49.7% 51.4% 55.1%
Total services revenue $ 16,937 $ 17,006 $ 14,987
Cost 11,404 11,824 9,481
------------ ------------ ------------
Gross profit $ 5,533 $ 5,182 $ 5,506
------------ ------------ ------------
Gross profit margin 32.7% 30.5% 36.7%
</TABLE>
Services revenue, excluding maintenance, on an as-reported basis, was flat when
compared to 1993. The 1994 results do not include operational results from FSC,
which were included in 1993 and 1992 results. When adjusted for the effects of
the FSC sale, services revenue continued to show strong overall growth,
increasing 27.0 percent in 1994 over 1993, following an increase of 38.3 percent
in 1993 over 1992. The increases were primarily driven by strong growth in
managed operations for both systems and networks, consulting, and systems
integration activity.
Services gross profit dollars, excluding maintenance, increased 35.9 percent,
following an increase of 10.1 percent in 1993 over 1992. Adjusted for the FSC
sale, 1994 gross profit dollars increased 54.0 percent over 1993, and 7.3
percent in 1993 versus 1992. The 1993 gross profit dollars were impacted by cost
adjustments that were required on certain older contracts that were not expected
to be profitable. The services gross profit margins adjusted for the FSC
activity, excluding maintenance, were 20.0 percent, 16.5 percent, and 21.3
percent in 1994, 1993, and 1992, respectively.
Maintenance revenue decreased 1.0 percent from 1993, following a decrease of 4.4
percent in 1993 from 1992. Gross profit dollars decreased 4.4 percent
year-over-year, following a decrease of 10.8 percent in 1993 from
39
<PAGE>
MANAGEMENT DISCUSSION
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
1992. Maintenance revenue and gross profit margins continue to be adversely
affected by the competitive environment and resulting pricing pressures on
maintenance offerings. This trend is expected to continue.
rentals and financing
(Dollars in millions) 1994 1993 1992
Total revenue $ 3,425 $ 4,166 $ 4,678
Total cost 1,384 1,738 1,966
------------ ------------ ------------
Gross profit $ 2,041 $ 2,428 $ 2,712
------------ ------------ ------------
Gross profit margin 59.6% 58.3% 58.0%
Rentals and financing revenue decreased 17.8 percent from 1993, following a
decrease of 10.9 percent in 1993 from 1992. Rentals and financing gross
profit dollars decreased 15.9 percent from 1993, following a decrease of 10.5
percent in 1993 from 1992. These decreases are a result of lower financing
volumes and reduced prices of IBM products being financed.
operating expenses
<TABLE>
<S> <C> <C> <C>
(Dollars in millions) 1994 1993 1992
Selling, general and administrative $ 15,916 $ 18,282 $ 19,526
Percentage of revenue 24.8% 29.2% 30.3%
Research, development and engineering $ 4,363 $ 5,558 $ 6,522
Percentage of revenue 6.8% 8.9% 10.1%
</TABLE>
Selling, general and administrative (SG&A) expense decreased 12.9 percent from
1993, which followed a decrease of 6.4 percent in 1993 from 1992. The 1994
decrease includes the before-tax gain from the FSC sale. Without this gain, SG&A
decreased 10.9 percent. These decreases reflect the results of the company's
focus on productivity, restructuring programs, and expense controls.
Work-force-related SG&A decreased 6.9 percent from 1993, which followed a
decrease of 11.7 percent from 1992. The component of SG&A that is not work force
related decreased in 1994, primarily as a result of the gain from the FSC sale,
lower provisions for accounts receivable, and increased royalty/patent income
over 1993 levels. Late in 1994, the Mexican economy suffered severe disruptions,
which caused a rapid decline in the Mexican Peso. As a result, the company
incurred a $27 million exchange loss, which is recorded in SG&A.
Research, development and engineering expense decreased 21.5 percent in 1994,
following a decrease of 14.8 percent in 1993 from 1992. The reductions reflect
the company's focus on productivity and expense controls, which resulted in
elimination of redundant efforts and reprioritization of development
activities to areas such as microprocessors, RISC technology, networking,
personal computers, and desktop software.
40
<PAGE>
MANAGEMENT DISCUSSION
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
restructuring charges
No restructuring charges were recorded in 1994. Restructuring charges were $8.9
billion in 1993 and $11.6 billion in 1992. 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 60 and 61.
other income
Other income, principally interest, was $1.4 billion in 1994, an increase of
23.7 percent from 1993, which almost doubled when compared to 1992 levels. The
1994 increase reflects higher levels of available cash and higher interest rates
versus 1993. The 1993 increase over 1992 reflects higher levels of available
cash and higher interest rates in countries whose economic environment is highly
inflationary, notably Brazil. Although other income increased, exchange
losses from currency revaluations of cash largely offset the increase. Exchange
losses are reflected in SG&A expense.
In July 1994, the Brazilian government converted to a new currency, the Real.
The new currency is tied to the U.S. dollar as part of the government's economic
plan to reduce inflation and stabilize the economy. If the changes in Brazil are
successful, it is anticipated that the economic plan will have the effect of
lowering 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. Other income and interest expense amounts decreased significantly
during the second half of 1994 compared with previous periods of 1994 and 1993
as a result of this change. Conversely, the Mexican Peso and economy continue
to experience disruption. While the company's operations in Mexico are not as
significant as its Brazilian operations, high-priority attention is being given
to strategies to minimize exchange impacts.
provision for income taxes
The provision for income taxes resulted in a charge of $2,134 million in 1994, a
benefit of $810 million in 1993, and a benefit of $2,161 million in 1992.
The 1994 provision was based on earnings before income taxes of $5,155 million,
resulting in an effective tax rate of 41 percent for 1994. The effective tax
rates of (9) percent in 1993 and (24) percent in 1992 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 and 46
percent in 1992. 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 United States 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
41
<PAGE>
MANAGEMENT DISCUSSION
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
$14.0 billion as compared to approximately $15.0 billion in 1993. 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' U.S.
taxable income was considered. This was approximately $200 million (estimated
income) in 1994, $(1.2) billion loss for 1993, and $4.4 billion income for 1992.
In addition, consideration was given to the impact of the announced
restructuring actions on the company's future taxable income and tax planning
strategies related to research and development costs.
changes in accounting principles
The company implemented SFAS 112, "Employers' Accounting for Postemployment
Benefits," effective January 1, 1993. The cumulative effect of adopting this
standard, which is discussed further on page 54, was 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, "Accounting for
Income Taxes." The cumulative effect of adopting this standard was a one-time
benefit to net earnings of $1,900 million for recognition of previously
unrecognized tax benefits.
fourth quarter
For the quarter ended December 31, 1994, the company had net earnings of $1,230
million ($2.06 per common share) compared to net earnings of $382 million ($.62
per common share) in the fourth quarter of 1993. Revenue for the fourth quarter
of 1994 totaled $19.9 billion, an increase of 2.6 percent when compared to the
same period of 1993. Fourth quarter 1994 revenue increased 6.6 percent over 1993
levels when adjusted for the sale of FSC.
On a geographic basis, revenue from Europe was $7.6 billion in the fourth
quarter, an increase of 7.8 percent over the same period of last year.
Asia-Pacific revenue grew 10.9 percent to $3.4 billion compared to the fourth
quarter of 1993. Revenue from Canada was $.8 billion, an increase of 19.4
percent over 1993's fourth quarter. U.S. fourth-quarter revenue was $7.0
billion, an increase of 4.6 percent over the same period of last year after
adjusting for the FSC sale. Revenue from Latin America declined 6.5 percent to
$1.1 billion compared to the fourth quarter of 1993.
Revenue gains resulting from currency rate fluctuation were largely offset by
increases in costs and expenses due to currency. Revenue on a constant currency
basis grew approximately 3 percent in the quarter.
Total hardware sales increased 2.5 percent to $10.6 billion in the fourth
quarter compared to the same period of 1993, while total software revenue
grew 6.9 percent to $3.3 billion. Services revenue increased 3.8 percent to $3.3
billion or 31.4 percent when adjusted for the sale of FSC compared to the fourth
quarter of 1993. Maintenance revenue increased 1.9 percent to $1.8 billion in
the quarter over the prior year, and rentals and financing revenue declined
12.5 percent to $862 million.
Within specific hardware product areas, AS/400 and RISC System/6000 revenue
continued to show strong growth. Mainframe and high-end storage products
revenue declined primarily as a result of year-over-year price reductions.
Personal computer revenue declined with particular weakness in the U.S.
Revenue from sales of OEM products continued to show strong growth, particularly
in the semiconductor area.
42
<PAGE>
MANAGEMENT DISCUSSION
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
The company's overall gross profit margin, which has held steady for the last
two years, was 40.6 percent compared to 38.2 percent in the fourth quarter of
1993. Total expenses, including net interest expense, declined 10.9 percent in
the fourth quarter of 1994 compared to the same period of 1993.
financial condition
The company's financial condition improved significantly during 1994, with
increases in cash and stockholders' equity and decreases in outstanding
debt and total liabilities.
working capital
(Dollars in millions) 1994 1993
Current assets $ 41,338 $ 39,202
Current liabilities 29,226 33,150
------------ ------------
Working capital $ 12,112 $ 6,052
------------ ------------
Current ratio 1.41:1 1.18:1
Current assets increased $2.1 billion due to increases in cash, cash
equivalents, and marketable securities of $3.4 billion and accounts receivable
of $2.1 billion, offset by decreases of $1.2 billion in inventories and $2.2
billion in prepaid expenses. The increase in cash, cash equivalents, and
marketable securities is primarily attributable to cash generated from
operations and $1.5 billion in proceeds from the sale of FSC, offset by net cash
utilized to settle outstanding debt of $6.1 billion, and net cash outflow of
$2.8 billion due to the company's restructuring programs. The increase in
accounts receivable largely reflects strong year-end business volumes, and the
company's efforts to reduce the securitization and factoring of receivables. The
decline in inventories from year-end 1993 levels results from ongoing efforts to
better manage the company's inventories, particularly personal computer
inventories. Lower prepaid expenses resulted from the disposition of FSC net
assets, which were being held for sale, as well as a decrease in current
deferred tax assets.
Current liabilities decreased $3.9 billion from December 31, 1993, with declines
of $2.5 billion in short-term debt and $2.5 billion in other accrued expenses
and liabilities, offset by a net increase of $1.1 billion in other current
liabilities (increases in taxes, accounts payable, and compensation and
benefits, and a slight decrease in deferred income). The reduction in short-term
debt is driven by the company's efforts to reduce its overall debt obligations,
while the decline in other accrued expenses and liabilities is due to lower
restructuring accrual balances from implementation of the company's
restructuring programs.
investments
The company's capital expenditures for plant, rental machines and other property
were $3.1 billion for the year ended December 31, 1994, a decrease of $.1
billion from 1993. The net book value of plant, rental machines and other
property declined $.9 billion from 1993, primarily due to depreciation exceeding
current levels of capital additions.
43
<PAGE>
MANAGEMENT DISCUSSION
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
In addition to software development expense included in research, development
and engineering expense, the company capitalized $1.4 billion of software costs
during 1994, versus the $1.5 billion capitalized in 1993. Amortization of
capitalized software costs amounted to $2.1 billion for 1994, an increase of
$.1 billion from 1993. This amortization included $.3 billion in accelerated
amortization of capitalized software costs resulting from the software
amortization change implemented in the first quarter of 1994. This change is
discussed on pages 38 and 39.
debt and equity
(Dollars in millions) 1994 1993
Short-term debt $ 9,570 $ 12,097
Long-term debt 12,548 15,245
------------ ------------
Total debt $ 22,118 $ 27,342
------------ ------------
Stockholders' equity $ 23,413 $ 19,738
------------ ------------
Long-term debt/equity 53.6% 77.2%
Long-term debt declined $2.7 billion from December 31, 1993, due to the
company's continuing focus on reduction of its outstanding debt obligations;
long-term debt issued in support of the company's financing activities declined
$1.9 billion, while "core" long-term debt declined $.8 billion in 1994.
Other non-current liabilities increased $2.8 billion from year-end 1993, due
primarily to the redesignation of restructuring reserves in addition to
increases in postretirement benefit reserves.
The company has accrued for environmental matters, including estimated costs of
cleanup of Superfund sites, operating facilities, and restoration and monitoring
costs related to the closure of facilities. The company also has environmental
programs in place which include investment in state-of-the-art facilities for
environmental protection as well as other programs to ensure compliance with
government regulations and the company's commitment to responsible environmental
practices. Environmental costs, including costs associated with complying with
existing environmental regulations, are not expected to materially affect the
company's financial position or results of operations in future periods. Further
discussion appears in note L on pages 61 and 62.
Stockholders' equity increased $3.7 billion from December 31, 1993, resulting
from increases of $2.4 billion in retained earnings, $1.0 billion in translation
adjustments, and $.3 billion in common stock transactions.
currency rate fluctuations
Approximately 90 percent of the company's non-U.S. business is conducted in
local currency environments. With the majority of worldwide currencies
strengthening versus the U.S. dollar in 1994, assets and liabilities denominated
in local currencies translate into more U.S. dollars. Changes in net worth
arising from these currency fluctuations are accumulated in the translation
adjustments component of stockholders' equity. As of December 31, 1994, the
cumulative translation adjustment was $2.7 billion, an increase of $1.0 billion
over 1993.
44
<PAGE>
MANAGEMENT DISCUSSION
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
In high-inflation environments, such as parts of Latin America, translation
adjustments are reflected in period income, as required by SFAS 52, "Foreign
Currency Translation." Generally, the company minimizes currency risk in these
countries by linking prices and contracts to U.S. dollars and by financing
operations locally.
The company has been, to a great degree, buffered from currency risk in its
business operations by manufacturing, developing and procuring 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 company's customer financing transactions and
the repatriation of dividends and royalties. Currency rate variations did not
have a material effect on the company's operating results in 1994, 1993, or
1992. Revenue gains in 1994, resulting from currency rate fluctuations, were
largely offset by increases in costs and expenses due to currency movements.
liquidity
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. As of December 31, 1994, $9.4 billion was unused and still
available. Further discussion appears in note T on page 71.
At year-end 1994, the company had a net balance of $1.8 billion in assets under
management from the securitization of lease and trade receivables. This amount
is $1.3 billion lower than the 1993 year-end balance of $3.1 billion. Further
discussion appears in note U on page 71.
During 1994, the company issued, in lieu of purchasing on the open market, 5.7
million shares of common stock, which has been sold to employees under the IBM
Employees 1990 Stock Purchase Plan. Also, during 1994, the company contributed
.7 million shares of common stock, as well as cash, to the IBM Retirement Plan
Trust Fund.
In October of 1994, Moody's Investors Service upgraded its short-term debt
rating for IBM and its rated subsidiaries to "Prime-1" from "Prime-2."
The following table summarizes the company's cash flow 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 50:
<TABLE>
<S> <C> <C> <C>
(Dollars in millions) 1994 1993 1992
Net cash provided from (used in):
Operating activities $ 11,793 $ 8,327 $ 6,274
Investing activities (3,426) (4,202) (5,878)
Financing activities (6,412) (1,914) 654
Effect of exchange rate changes
on cash and cash equivalents 106 (796) (549)
----------- ------------ ------------
Net change in cash and cash equivalents $ 2,061 $ 1,415 $ 501
</TABLE>
45
<PAGE>
MANAGEMENT DISCUSSION
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
The improvement in 1994 cash flow from operations, compared with the 1993
period, was mainly driven by the increase in earnings and lower inventories,
offset by cash outlays associated with the company's restructuring activities.
The period-to-period improvement in cash flow from investing activities
primarily results from the proceeds derived from the sale of FSC in the first
quarter of 1994.
The increase in net cash outflow from financing activities in 1994 is due
principally to the company's ongoing efforts to reduce its overall outstanding
debt obligations.
The company's "core" 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 "core" business. The model is not intended
to replace the GAAP cash flow above, but is supplementary in nature. Under this
model, "core" cash flow from operations was approximately $6.9 billion in 1994.
Operations, as defined in this model, includes operating and investing
activities, but excludes the impact 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 62
through 65. 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. To manage the risks
associated with an uncertain interest rate environment, the company pursues
a funding strategy of substantially matching the terms of its debt with the
terms of its assets. Currency risks are managed by denominating liabilities in
the same currency as the assets.
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 earning a profit. In 1994 and 1993, 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 and 1994. The following schedule excludes approximately
$50 million of estimated residual value associated with non-information
technology equipment.
Total Run Out of 1994 Residual Value Balance
----------- ---------------------------------------
(Dollars in millions) 1993 1994 1995 1996 1997 1998 1999
Sales-type leases $ 760 $ 535 $ 210 $ 200 $ 95 $ 25 $ 5
Operating leases 250 140 75 40 20 5 --
------ ------- ------ ------ ------ ----- -----
Total residual value $1,010 $ 675 $ 285 $ 240 $ 115 $ 30 $ 5
46
<PAGE>
MANAGEMENT DISCUSSION
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
federal systems company
The sale of FSC to Loral Corporation for $1.503 billion in cash had a closing
date of March 1, 1994, and was effective January 1, 1994. This transaction
resulted in an after-tax net gain of $248 million ($.43 per common share) in the
company's first-quarter 1994 results. The net gain reflects the impact
of certain contractual, employee postemployment, and other obligations, which
included amounts for the Advanced Automation System contract for the Federal
Aviation Authority, that the company recorded as part of the sale. The sale
also resulted in a decrease of $752 million in prepaid expenses and other
current assets, which represents the net assets associated with FSC.
Additionally, as a result of this sale, approximately 10,000 people have
either transferred to Loral, retired, or are on a preretirement leave from the
company.
FSC marketed 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, was not part of the transaction. In 1993, FSC had, on a stand-alone
basis, net earnings of $58 million on revenues of $2.3 billion.
employees
<TABLE>
Percentage Changes
<S> <C> <C> <C> <C>
1994 1993 1992 1994-93 1993-92
IBM/wholly owned subsidiaries 219,839 256,207 301,542 (14.2)% (15.0)%
Less than wholly owned subsidiaries 23,200 10,989 6,468 111.1% 69.9%
Complementary 35,000 35,000 29,000 0.0% 20.7%
</TABLE>
As of December 31, 1994, regular employees were down 36,368 from 1993 and 81,703
from 1992. The company continues to form business entities to enhance
efficiencies and achieve its strategic objectives. Some of these entities, while
less than wholly owned, are consolidated into the company's financial
statements. The increase in employees in the less than wholly owned subsidiaries
category in 1994 results primarily from the formation of the following IBM
business ventures: Technology Service Solutions (U.S.) - 4,920; Information
Services Group Limited (South Africa) - 1,400; and Integrated Systems Solutions
Corporation (Australia) - 1,059.
The company's complementary work force comprises equivalent full-time workers
hired under temporary, part-time, and limited-term-employment arrangements to
meet specific short-term business needs in a flexible and cost-effective manner.
looking forward
Although the company returned to profitability in 1994, significant challenges
remain. The company must continue to focus on productivity improvements, growth
industries and emerging markets, costs and implementation of its long-term
strategies. This is particularly true within the Personal Computer Company and
desktop software. In 1995, the company will reduce its expenses as
re-engineering and restructuring programs continue. The company plans to reduce
total annual expenses $8.0 billion from 1992 levels by mid-1996. This is $1.0
billion more than its previously stated goal. At year-end 1994, annual expenses
had decreased by $6.3 billion when compared with full-year 1992 levels.
47
<PAGE>
CONSOLIDATED STATEMENT OF OPERATIONS
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
Dollars in millions except per share amounts)
For the year ended December 31: Notes 1994 1993 1992
Revenue:
Hardware sales $ 32,344 $ 30,591 $ 33,755
Software 11,346 10,953 11,103
Services 9,715 9,711 7,352
Maintenance 7,222 7,295 7,635
Rentals and financing N} 3,425 4,166 4,678
- -------------------------------------------------------------------------------
Total revenue 64,052 62,716 64,523
- -------------------------------------------------------------------------------
Cost:
Hardware sales 21,300 20,696 19,698
Software 4,680 4,310 3,924
Services 7,769 8,279 6,051
Maintenance 3,635 3,545 3,430
Rentals and financing 1,384 1,738 1,966
- -------------------------------------------------------------------------------
Total cost 38,768 38,568 35,069
- -------------------------------------------------------------------------------
Gross profit 25,284 24,148 29,454
- -------------------------------------------------------------------------------
Operating expenses:
Selling, general and administrative 15,916 18,282 19,526
Research, development and engineering I} 4,363 5,558 6,522
Restructuring charges J} -- 8,945 11,645
- -------------------------------------------------------------------------------
Total operating expenses 20,279 32,785 37,693
- -------------------------------------------------------------------------------
Operating income (loss) 5,005 (8,637) (8,239)
Other income, principally interest 1,377 1,113 573
Interest expense K} 1,227 1,273 1,360
- --------------------------------------------------------------------------------
Earnings (loss) before income taxes 5,155 (8,797) (9,026)
Provision (benefit) for income taxes H} 2,134 (810) (2,161)
- --------------------------------------------------------------------------------
Net earnings (loss) before changes
in accounting principles 3,021 (7,987) (6,865)
Effect of changes in accounting
principles B} -- (114) 1,900
- --------------------------------------------------------------------------------
Net earnings (loss) 3,021 (8,101) (4,965)
Preferred stock dividends 84 47 --
- --------------------------------------------------------------------------------
Net earnings (loss) applicable
to common shareholders $ 2,937 $ (8,148) $ (4,965)
- --------------------------------------------------------------------------------
Per share of common stock amounts:
Before changes in accounting principles $ 5.02 $ (14.02) $ (12.03)
Effect of changes in accounting
principles B} -- (.20) 3.33
- --------------------------------------------------------------------------------
Net earnings (loss) applicable to common
shareholders $ 5.02 $ (14.22) $ (8.70)
- --------------------------------------------------------------------------------
Average number of common shares outstanding:
1994-584,958,699; 1993-573,239,240; 1992-570,896,489
The notes on pages 52 through 78 are an integral part of this statement.
48
<PAGE>
CONSOLIDATED STATEMENT OF FINANCIAL POSTION
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
(Dollars in millions)
At December 31: Notes 1994 1993
Assets
Current assets:
Cash $ 1,240 $ 873
Cash equivalents 6,682 4,988
Marketable securities C} 2,632 1,272
Notes and accounts receivable--trade,
net of allowances 14,018 11,676
Sales-type leases receivable 6,351 6,428
Other accounts receivable 1,164 1,308
Inventories D} 6,334 7,565
Prepaid expenses and other current assets 2,917 5,092
- -------------------------------------------------------------------------------
Total current assets 41,338 39,202
- -------------------------------------------------------------------------------
Plant, rental machines and other property E} 44,820 47,504
Less: Accumulated depreciation 28,156 29,983
- -------------------------------------------------------------------------------
Plant, rental machines and other property--net 16,664 17,521
- -------------------------------------------------------------------------------
Software, less accumulated amortization
(1994, $10,793; 1993, $10,143) 2,963 3,703
Investments and sundry assets F} 20,126 20,687
- -------------------------------------------------------------------------------
Total assets $ 81,091 $ 81,113
- -------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Taxes H} $ 1,771 $ 1,589
Short-term debt G} 9,570 12,097
Accounts payable 3,778 3,400
Compensation and benefits 2,702 2,053
Deferred income 3,475 3,575
Other accrued expenses and liabilities 7,930 10,436
- -------------------------------------------------------------------------------
Total current liabilities 29,226 33,150
- -------------------------------------------------------------------------------
Long-term debt G} 12,548 15,245
Other liabilities L} 14,023 11,177
Deferred income taxes H} 1,881 1,803
- -------------------------------------------------------------------------------
Total liabilities 57,678 61,375
- -------------------------------------------------------------------------------
Contingencies M}
Stockholders' equity:
Preferred stock, par value $.01 per share--
shares authorized: 150,000,000
shares issued: 1994--11,145,000;
1993--11,250,000 V } 1,081 1,091
Common stock, par value $1.25 per share--
shares authorized: 750,000,000
shares issued: 1994--588,180,244;
1993--581,388,475 7,342 6,980
Retained earnings 12,352 10,009
Translation adjustments 2,672 1,658
Treasury stock, at cost (shares: 1994--469,500;
1993--2,679) (34) --
- -------------------------------------------------------------------------------
Total stockholders' equity 23,413 19,738
- -------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 81,091 $ 81,113
- -------------------------------------------------------------------------------
The notes on pages 52 through 78 are an integral part of this statement.
49
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
<TABLE><CAPTION>
(Dollars in millions)
For the year ended December 31: 1994 1993 1992
Cash flow from operating activities:
<S> <C> <C> <C>
Net earnings (loss) $ 3,021 $ (8,101) $ (4,965)
Adjustments to reconcile net earnings
(loss) to cash provided from
operating activities:
Effect of changes in accounting
principles -- 114 (1,900)
Effect of restructuring charges (2,772) 5,230 8,312
Depreciation 4,197 4,710 4,793
Deferred income taxes 825 (1,335) (3,356)
Amortization of software 2,098 1,951 1,466
(Gain) loss on disposition of
investment assets (11) 151 54
Other changes that provided (used) cash:
Receivables 653 1,185 1,052
Inventories 1,518 583 704
Other assets 187 1,865 110
Accounts payable 305 359 (311)
Other liabilities 1,772 1,615 315
- -----------------------------------------------------------------------------------
Net cash provided from operating activities 11,793 8,327 6,274
- -----------------------------------------------------------------------------------
Cash flow from investing activities:
Payments for plant, rental machines
and other property (3,078) (3,154) (4,751)
Proceeds from disposition of plant,
rental machines and other
property 900 793 633
Investment in software (1,361) (1,507) (1,752)
Purchases of marketable securities and
other investments (3,866) (2,721) (3,284)
Proceeds from marketable securities and
other investments 2,476 2,387 3,276
Proceeds from the sale of Federal
Systems Company 1,503 -- --
- -----------------------------------------------------------------------------------
Net cash used in investing activities (3,426) (4,202) (5,878)
- -----------------------------------------------------------------------------------
Cash flow from financing activities:
Proceeds from new debt 5,335 11,794 10,045
Payments to settle debt (9,445) (8,741) (10,735)
Short-term borrowings less than 90 days-net (1,948) (5,247) 4,199
Preferred stock transactions-net (10) 1,091 --
Common stock transactions-net 318 122 (90)
Cash dividends paid (662) (933) (2,765)
- -----------------------------------------------------------------------------------
Net cash (used in) provided from
financing activities (6,412) (1,914) 654
- -----------------------------------------------------------------------------------
Effect of exchange rate changes on cash and
cash equivalents 106 (796) (549)
- -----------------------------------------------------------------------------------
Net change in cash and cash equivalents 2,061 1,415 501
Cash and cash equivalents at January 1 5,861 4,446 3,945
- -----------------------------------------------------------------------------------
Cash and cash equivalents at December 31 $ 7,922 $ 5,861 $ 4,446
- -----------------------------------------------------------------------------------
Supplemental data:
Cash paid during the year for:
Income taxes $ 287 $ 452 $ 1,297
Interest $ 2,132 $ 2,410 $ 3,132
- ----------------------------------------------------------------------------------
</TABLE>
The notes on pages 52 through 78 are an integral part of this statement.
50
<PAGE>
<TABLE><CAPTION>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
(Dollars in millions)
Preferred Common Retained Translation Treasury
Stock Stock Earnings Adjustments Stock Total
<S> <C> <C> <C> <C> <C> <C>
1992
Stockholders' equity, January 1, 1992 $ -- $ 6,531 $ 26,983 $ 3,196 $ (31) $ 36,679
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
1994
Net earnings 3,021 3,021
Cash dividends declared-common stock (585) (585)
Cash dividends declared-preferred stock (84) (84)
Preferred stock purchased and retired
(105,000 shares) (10) (10)
Common stock issued under employee
plans (6,120,255 shares) 318 318
Common stock issued to U.S. pension
plan fund (671,030 shares) 39 39
Purchases (1,401,740 shares) and sales
(934,919 shares) of treasury stock
under employee plans-net (9) (34) (43)
Tax reductions-employee plans 5 5
Translation adjustments 1,014 1,014
- ------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity, December 31, 1994 $ 1,081 $ 7,342 $ 12,352 $ 2,672 $ (34) $ 23,413
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The notes on pages 52 through 78 are an integral part of this statement.
51
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
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--50 percent ownership), are accounted for by the equity method.
Other investments are accounted for by the cost method.
Revenue
Revenue from hardware sales or sales-type leases is recognized when the product
is shipped. Revenue from one-time-charge licensed software is recognized when
the program is shipped with an appropriate deferral for post-contract customer
support. This deferral is earned over the support period. Revenue from monthly
software licenses is recognized as license fees accrue; from maintenance and
services over the contractual period, or as the services are performed;
from rentals and operating leases, monthly as the fees accrue; and from
financing at level rates of return over the term of the lease or receivable.
Revenue is reduced for estimated customer returns and allowances.
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 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, "Accounting for Income Taxes," these deferred
taxes are measured by applying currently enacted tax laws.
Translation of Non-U.S. Currency Amounts
Assets and liabilities of non-U.S. subsidiaries that operate in a local currency
environment 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. Inventories and plant, rental machines and other property
of non-U.S. subsidiaries and branches that operate in U.S. dollars or whose
economic environment is highly inflationary are translated at approximate
exchange 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 exchange 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.
52
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
Cash Equivalents
All highly liquid investments with a maturity of three months or less at date of
purchase are considered to be cash equivalents.
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 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 is applied over
periods ranging from two to four years. Periodic reviews are performed to ensure
that 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 in the period.
B} accounting changes
Effective January 1, 1994, the company implemented SFAS 115, "Accounting for
Certain Investments in Debt and Equity Securities." Adoption of this standard
had no impact on the company's Consolidated Statement of Operations, and the
Consolidated Statement of Financial Position was not materially affected. Prior
years' consolidated financial statements have not been restated to reflect this
change.
53
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
Effective January 1, 1993, the company implemented SFAS 112, "Employers'
Accounting for Postemployment Benefits." While the company was generally in
compliance with the standard prior to adoption, a charge was taken to recognize
the cost of certain benefits, primarily related to healthcare for employees on
disability. The cumulative effect of adopting this standard was a one-time
charge of $114 million (net of approximately $61 million of income tax
benefits). Prior years' consolidated financial statements were not restated to
reflect this change.
In 1992, the company implemented SFAS 109, "Accounting for Income Taxes.'' This
standard 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 was to
recognize 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.
The Financial Accounting Standards Board issued SFAS 114, "Accounting by
Creditors for Impairment of a Loan," in May 1993 and SFAS 118, "Accounting by
Creditors for Impairment of a Loan -- Income Recognition and Disclosure," an
amendment of SFAS 114, in October 1994. These standards prescribe impairment
measurements and reporting related to certain loans. SFAS 114 and SFAS 118 are
effective for fiscal years beginning after December 15, 1994. The implementation
of these standards is not expected to have a material effect on the financial
position or results of operations of the company.
C} marketable securities
At December 31:
(Dollars in millions) 1994 1993
U.S. government securities $ 1,020 $ 702
Time deposits and other bank obligations 459 515
Non-U.S. government securities and
other fixed-term obligations 1,153 55
----------- -----------
Total, which approximates market value $ 2,632 $ 1,272
----------- -----------
D} inventories
At December 31:
(Dollars in millions) 1994 1993
Finished goods $ 1,442 $ 1,906
Work in process 4,636 5,539
Raw materials 256 120
----------- -----------
Total $ 6,334 $ 7,565
----------- -----------
54
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
E} plant, rental machines and other property
At December 31:
(Dollars in millions) 1994 1993
Land and land improvements $ 1,437 $ 1,422
Buildings 13,093 13,314
Plant, laboratory and office equipment 27,084 29,829
----------- -----------
41,614 44,565
Less: Accumulated depreciation 26,299 28,576
----------- -----------
15,315 15,989
Rental machines and parts 3,206 2,939
Less: Accumulated depreciation 1,857 1,407
----------- -----------
1,349 1,532
----------- -----------
Total $ 16,664 $ 17,521
----------- -----------
F} investments and sundry assets
At December 31:
(Dollars in millions) 1994 1993
Net investment in sales-type leases* $ 15,838 $ 17,518
Less: Current portion-net 6,351 6,428
----------- -----------
9,487 11,090
Deferred taxes 4,533 4,521
Prepaid pension cost 1,528 532
Non-current customer loan receivables 1,311 882
Installment payment receivables 817 703
Investments in business alliances 380 650
Goodwill, less accumulated amortization
(1994, $648;1993, $462) 427 646
Other investments and sundry assets 1,643 1,663
----------- -----------
Total $ 20,126 $ 20,687
----------- -----------
*These leases relate principally to IBM equipment and are generally for terms
ranging from three to five years. Net investment in sales-type leases includes
unguaranteed residual values of approximately $535 million and $760 million at
December 31, 1994 and 1993, and is reflected net of unearned income at these
dates of approximately $2,600 million and $3,100 million, respectively.
Scheduled maturities of minimum lease payments outstanding at December 31, 1994,
expressed as a percentage of the total, are approximately as follows: 1995, 40
percent; 1996, 33 percent; 1997, 18 percent; 1998, 7 percent; 1999 and after,
2 percent.
55
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
G} debt
short-term debt
At December 31:
(Dollars in millions) 1994 1993
Commercial paper $ 2,544 $ 3,735
Short-term loans 2,977 4,356
Long-term debt: Current maturities 4,049 4,006
----------- -----------
Total $ 9,570 $ 12,097
----------- -----------
The weighted-average interest rates for commercial paper at December 31, 1994
and 1993, were 4.9 percent and 3.9 percent, respectively. The weighted average
interest rates for short-term loans at December 31, 1994 and 1993, were 6.6
percent and 5.9 percent, respectively.
long-term debt
At December 31:
(Dollars in millions) 1994 1993
Maturities
U.S. Dollars:
Debentures :
7-1/2% 2013 $ 550 $ 550
8-3/8% 2019 750 750
Notes :
5-5/8% to 7-5/8% 1995-2002 3,325 4,267
7-3/4% to 8-7/8% 1995-1997 -- 102
9% to 9-7/8% 1995-2000 641 692
Medium-term note program:
4.1% to 9.9% 1995-2008 2,803 1,734
Other U.S. dollars: 4.0% to 9.5% 1995-2012 558 1,765
----------- -----------
8,627 9,860
Other currencies (average interest
rate at December 31, 1994,
in parentheses):
Japanese yen (4.5%) 1995-2014 4,769 5,057
Swiss francs (5.0%) 1995-1996 629 699
European currency units (9.1%) 1995 400 1,044
Canadian dollars (10.3%) 1995-1999 638 852
French francs (7.3%) 1995-2002 858 809
Australian dollars (9.6%) 1995-1997 326 253
Other (9.7%) 1995-2017 371 696
----------- -----------
16,618 19,270
Less: Net unamortized discount 21 19
----------- -----------
16,597 19,251
Less: Current maturities 4,049 4,006
----------- -----------
Total $ 12,548 $ 15,245
----------- -----------
Annual maturity and sinking fund requirements in millions of dollars on
long-term debt outstanding at December 31, 1994, are as follows: 1995, $4,049;
1996, $3,105; 1997, $2,769; 1998, $2,240; 1999, $315; 2000 and beyond, $4,140.
56
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
H} taxes
(Dollars in millions) 1994 1993 1992
For the year ended December 31:
Earnings (loss) before income taxes:
U.S. operations $ 1,574 $ (6,073) $ (7,678)
Non-U.S. operations 3,581 (2,724) (1,348)
--------- ----------- -----------
$ 5,155 $ (8,797) $ (9,026)
--------- ----------- -----------
The provision (benefit) for income
taxes by geographic operations
is as follows:
U.S. operations $ 654 $ (505) $ (2,179)
Non-U.S. operations 1,480 (305) 18
--------- ----------- -----------
Total provision (benefit) for income
taxes $ 2,134 $ (810) $ (2,161)
--------- ----------- -----------
The components of the provision
(benefit) for income taxes
by taxing jurisdiction are
as follows:
U.S. federal:
Current $ 49 $ (4) $ (115)
Deferred 74 (890) (2,390)
Net deferred investment tax credits -- (51) (54)
--------- ----------- -----------
123 (945) (2,559)
U.S. state and local:
Current 68 26 (14)
Deferred -- 23 3
--------- ----------- -----------
68 49 (11)
Non-U.S.:
Current 1,192 554 1,378
Deferred 751 (468) (969)
--------- ----------- -----------
1,943 86 409
--------- ----------- -----------
Total provision (benefit) for
income taxes 2,134 (810) (2,161)
Social security, real estate,
personal property, and other taxes 2,465 2,614 3,067
--------- ----------- -----------
Total taxes $ 4,599 $ 1,804 $ 906
--------- ----------- -----------
The non-U.S. deferred income tax provision was reduced $106 million due to the
utilization of operating loss carryforwards in 1994.
The impact of tax law changes on deferred tax assets and liabilities was not
material to the company's financial results in 1994 and 1992 and was a benefit
of $170 million in 1993.
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.
57
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
The significant components of deferred tax assets and liabilities included on
the balance sheet were as follows:
(Dollars in millions) 1994 1993*
At December 31:
Deferred Tax Assets
Retiree medical benefits $ 2,500 $ 1,961
Restructuring charges 2,446 5,253
Capitalized R&D 2,057 1,739
Foreign tax credits 1,380 885
Alternative minimum tax credits 738 729
Inventory 633 621
Foreign tax loss carryforwards 469 989
Doubtful accounts 453 480
General business credits 452 452
Equity alliances 445 309
State and local tax loss carryforwards 370 566
Employee benefits 363 480
Intracompany sales and services 357 440
Depreciation 249 234
U.S. federal tax loss carryforwards 230 1,093
Warranty 163 125
Retirement benefits 127 124
Software income deferred 78 186
Other 2,685 2,521
------------- ------------
Gross deferred tax assets 16,195 19,187
Less: Valuation allowance 4,551 5,035
------------- ------------
Total deferred tax assets $ 11,644 $ 14,152
------------- ------------
Deferred Tax Liabilities
Sales-type leases $ 2,862 $ 3,118
Depreciation 1,653 1,537
Software costs deferred 1,283 1,824
Retirement benefits 1,061 1,069
Other 823 1,379
------------- ------------
Gross deferred tax liabilities $ 7,682 $ 8,927
------------- ------------
* Reclassified to conform with 1994 presentation.
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, 1994, was a decrease of $484
million.
58
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
The estimated reversal periods for the largest deductible temporary differences
are: Retiree Medical - 1 to 30 years; Restructuring - 1 to 5 years.
The consolidated effective income tax rate was 41 percent in 1994, (9) percent
in 1993, and (24) percent in 1992.
A reconciliation of the company's effective tax rate to the statutory U.S.
federal tax rate is as follows:
For the year ended December 31: 1994 1993 1992
Statutory rate 35% (35)% (34)%
U.S. valuation allowance related
to restructuring -- 20 6
Foreign tax differential 5 7 5
State and local, net 1 -- --
Other -- (1) (1)
------ ------ ------
Effective rate 41% (9)% (24)%
For tax return purposes, the company has available tax credit carryforwards of
approximately $2,944 million, of which $369 million expire in 1996, $776 million
expire in 1998, $576 million expire in 1999, and the remainder thereafter. The
company also has federal, state and local, and foreign tax loss carryforwards,
the tax effect of which is $1,069 million. Most of these carryforwards are
available for fourteen years or have an indefinite carryforward period.
Undistributed earnings of non-U.S. subsidiaries included in consolidated
retained earnings amounted to $11,280 million at December 31, 1994, $10,915
million at December 31, 1993, and $12,182 million at December 31, 1992. 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.
I} research, development and engineering
Research, development and engineering expenses amounted to $4,363 million in
1994, $5,558 million in 1993, and $6,522 million in 1992. Expenditures for
product-related engineering included in these amounts were $981 million, $1,127
million, and $1,439 million in 1994, 1993, and 1992, respectively.
Expenditures of $3,382 million in 1994, $4,431 million in 1993, and $5,083
million in 1992 were made for research and development activities covering
basic scientific research and the application of scientific advances to the
development of new and improved products and their uses. Of these amounts,
software-related activities were $793 million, $1,097 million, and $1,161
million in 1994, 1993, and 1992, respectively.
59
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
J} restructuring actions
In 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, as part of restructuring programs to streamline and reduce
resources utilized in the business. These charges and their subsequent
utilization are summarized in the following table:
(Dollars in billions) Amounts Amounts Amounts
Charged in Utilized at to be
1993 and Year-end Utilized
1992* 1994 in 1995
Work force related $ 11.5 $ 10.5 $ 1.0
Manufacturing capacity 4.9 4.0 .9
Excess space 3.4 3.0 .4
Other .7 .7 --
---------- ---------- ---------
Total restructuring charges $ 20.5 $ 18.2 $ 2.3**
---------- ---------- ---------
*Includes redistribution among categories, as described in detail below.
**$1.4 billion included in Other accrued expenses and liabilities and $.9
billion reduction to Plant, rental machines and other property in the
Consolidated Statement of Financial Position at December 31, 1994.
As of December 31, 1994, the company has determined that restructuring reserve
balances are adequate to cover committed restructuring actions. Based on the
actual restructuring actions in 1994, it was necessary to redistribute by
category $1.2 billion of the $20.5 billion assumed in the original restructuring
plans. The company reduced reserve balances designated for manufacturing
capacity actions by $1.2 billion and increased amounts originally designated for
work-force-related and excess space actions by $.1 billion and $1.1 billion,
respectively. All remaining restructuring actions have been announced as of
December 31, 1994, and it is estimated that approximately $1.3 billion of the
remaining $2.3 billion of restructuring reserves will be utilized by March 31,
1995, with the remaining amounts being fully utilized prior to December
31, 1995.
The company records restructuring charges against operations and provides a
reserve based on the best information available at the time the decision is made
to undertake the restructuring action. The reserves are considered utilized when
specific restructuring criteria are met, indicating the planned restructuring
action has occurred. Work-force-related reserves are considered utilized at
payment for 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 made available for sublease. It is the company's policy to continue
to charge depreciation, rental, and other operating costs relating to
manufacturing capacity and excess space to ongoing operations while they remain
in business use. Salaries and benefits are charged to operations while the
employee is actively employed.
60
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
The $11.4 billion of work-force-related reserves taken in 1992 and 1993
contemplated worldwide staff reductions of approximately 110,000 people. Through
1994, approximately 98,000 people have left the company under these programs.
The $.1 billion increase in work-force-related reserves was primarily a result
of higher than planned costs associated with staff reductions in Europe. The
manufacturing capacity reserves were reduced by $1.2 billion due to the
combination of increased demand for selected products, increased asset
requirements in several significant new Microelectronics Division joint
ventures, as well as a higher level of sales to third parties than originally
planned. The excess space accrual increased by $1.1 billion as a result of
additional lease space being vacated, primarily within the United States as a
result of work force reductions and more efficient utilization of owned space
allowing for consolidation of leased space.
Remaining cash outlays associated with work-force-related activities are
expected to total $3.7 billion of which $1.7 billion will be expended in 1995.
Remaining amounts relate to the pension plan curtailment portion of the charge
and other postretirement payments which will be made as required for funding
appropriate pension and other postretirement benefits in future years.
Remaining manufacturing capacity actions will not involve substantial cash
outlays. Cash requirements related to excess space charges are expected to
be expended as follows: $635 million in 1995, $418 million in 1996, $391 million
in 1997, and $999 million in 1998 and beyond.
K} interest on debt
Interest on borrowings of the company and its subsidiaries amounted to $2,006
million in 1994, $2,298 million in 1993, and $2,698 million in 1992. Of these
amounts, $20 million in 1994, $46 million in 1993, and $101 million in 1992 were
capitalized. The remainder was charged to cost of rentals and financing, and
interest expense. The lower levels of expense were a result of decreases in
total debt outstanding of $5.2 billion in 1994 versus 1993 and $2.0 billion
in 1993 versus 1992. The average interest rate for total debt was 8.0 percent,
7.7 percent, and 9.6 percent in 1994, 1993, and 1992, respectively.
L} other liabilities and environmental
Other liabilities consists principally of accruals for nonpension postretirement
benefits, indemnity, and retirement plan reserves for non-U.S. employees, and
restructuring charges. More detailed discussions of these liabilities appear in
note S, "Nonpension Postretirement Benefits," on pages 69 through 71; note R,
"Retirement Plans," on pages 67 through 69; and note J, "Restructuring Actions,"
on pages 60 and 61.
In addition, the company continues to participate in environmental assessments
and cleanups at a number of locations, including operating facilities,
previously owned facilities, and Superfund sites. The company accrues for all
known environmental liabilities for remediation cost when a cleanup program
becomes probable and costs can be reasonably estimated. Estimated environmental
costs associated with post-closure activities, such as the removal and
restoration of chemical storage facilities and monitoring, are accrued when the
decision is made to close a facility. The amounts accrued, which are
undiscounted and do not reflect any insurance recoveries, were $179 million and
$77 million at December 31, 1994 and 1993, respectively. The increase in the
61
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
accrual relates to expected costs of post-closure activities, reassessment of
remediation activities at operating facilities, and participation at additional
Superfund sites.
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. Also excluded is the
cost of internal environmental protection programs which are primarily
preventive in nature. 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 environmental remediation regulations.
M} contingencies
On February 25, 1993, a consolidated and amended class action complaint was
filed against the company in the United States District Court for the Southern
District of New York alleging violations of Section 12 of the Securities Act of
1933 and Section 10 of the Securities Exchange Act of 1934. The complaint
alleges, among other matters, that the company disseminated false and
misleading statements concerning its financial condition and dividends during
certain periods of 1992, as a result of which plaintiffs were injured in
connection with their purchases of IBM stock during the period of September 30,
1992, through December 14, 1992.
The plaintiffs seek unspecified money damages. The company believes it has good
defenses to the allegations raised in the consolidated complaint and intends to
defend itself vigorously. The company does not believe that the ultimate outcome
of this matter will have a material effect on its results of operations
or its financial position.
N} 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 both by IBM and through its financing subsidiaries; the results of
which are presented in this note in a consistent manner.
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 within a single line item the investment and
related return from customer financing as reflected in the company's
consolidated financial statements. 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 operations, 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.
62
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
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
<TABLE><CAPTION>
At December 31: IBM with Customer
Customer Financing on an
Financing Equity Basis
(Dollars in millions) 1994 1993 1994 1993
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 1,304 $ 2,096 $ 6,618 $ 3,765
Notes and accounts receivable -- -- 9,602 8,177
Net investment in sales-type leases 15,977 17,518 -- --
Working capital financing receivables 2,539 1,898 -- --
Loans receivable 3,910 3,615 -- --
Inventories 101 143 6,246 7,466
Plant, rental machines and other
property, net of accum.
depreciation 2,672 2,627 15,319 15,788
Other assets 2,167 2,551 16,516 16,679
Investment in customer financing -- -- 4,175 5,524
-------- -------- --------- --------
Total assets $ 28,670 $ 30,448 $ 58,476 $ 57,399
-------- -------- --------- --------
Liabilities and stockholders'
equity:
Taxes, accrued expenses, and
other liabilities $ 6,487 $ 6,417 $ 32,109 $ 31,450
Debt 19,164 21,131 2,954 6,211
-------- -------- -------- -------
Total liabilities 25,651 27,548 35,063 37,661
Stockholders' equity/invested capital 3,019 2,900 23,413 19,738
-------- -------- -------- -------
Total liabilities and stockholders'
equity $ 28,670 $ 30,448 $ 58,476 $ 57,399
-------- -------- --------- --------
</TABLE>
63
<PAGE>
<TABLE><CAPTION>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
statement of operations
For the year ended December 31: Customer IBM with Customer Financing
Financing on an Equity Basis
<S> <C> <C> <C> <C> <C> <C>
(Dollars in millions) 1994 1993 1992 1994 1993 1992
Finance and other income:
Finance income $ 2,026 $ 2,485 $ 2,699 $ -- $ -- $ --
Rental income, net of
depreciation 338 285 337 589 692 962
Sales 1,160 1,391 1,384 59,991 57,483 58,646
Other income 933 850 505 1,423 1,184 955
--------- --------- --------- -------- --------- ---------
Total finance and other income 4,457 5,011 4,925 62,003 59,359 60,563
Interest and other costs and
expenses 3,245 3,994 3,947 56,848 68,156 69,589
--------- --------- --------- -------- --------- ---------
Net earnings (loss) before
income taxes 1,212 1,017 978 5,155 (8,797) (9,026)
Provision (benefit) for
income taxes 505 443 406 2,134 (810) (2,161)
--------- --------- --------- -------- --------- ---------
Net earnings (loss) before changes
in accounting principles 707 574 572 3,021 (7,987) (6,865)
Effects of changes in accounting
principles -- -- -- -- (114) 1,900
--------- --------- --------- -------- --------- ---------
Net earnings (loss) $ 707 $ 574 $ 572 $ 3,021 $ (8,101) $ (4,965)
--------- --------- --------- -------- --------- ---------
<CAPTION>
statement of cash flows
For the year ended December 31: Customer IBM with Customer Financing
Financing on an Equity Basis
<S> <C> <C> <C> <C> <C> <C>
(Dollars in millions) 1994 1993 1992 1994 1993* 1992*
Net cash provided from
operating activities $ 2,669 $ 3,004 $ 3,414 $ 8,393 $ 4,499 $ 5,248
Net cash used in
investing activities (249) (284) (4,176) (2,446) (3,094) (4,090)
Net cash (used in) provided from
financing activities (3,294) (1,680) 1,094 (3,118) (234) (440)
Effect of exchange rate changes
on cash and cash equivalents 82 (47) (21) 24 (749) (528)
--------- ---------- --------- --------- --------- ---------
Net change in cash and cash
equivalents (792) 993 311 2,853 422 190
Cash and cash equivalents at
January 1 2,096 1,103 792 3,765 3,343 3,153
--------- ---------- ---------- -------- -------- ---------
Cash and cash equivalents at
December 31 $ 1,304 $ 2,096 $ 1,103 $ 6,618 $3,765 $ 3,343
--------- ---------- ---------- -------- -------- ---------
</TABLE>
* Reclassified to conform with 1994 presentation.
64
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
Customer financing debt at December 31, 1994, consisted of borrowings directly
with external financial institutions of $16,052 million and intracompany
borrowings of $3,112 million. Intracompany borrowings are made pursuant to loan
agreements between the parties at market rates of interest.
Customer financing earnings yielded a return on average invested capital of 24.5
percent in 1994, compared to 18.4 percent in 1993. 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 Operations. The 1994
earnings include income resulting from IBM Credit Corporation's litigation
settlement with Comdisco, Inc. and from IBM Credit Corporation's sale of IBM
Credit Investment Management Corporation.
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.
O} rental expense and lease commitments
Rental expense, including amounts charged to inventories and fixed assets,
excluding amounts charged to restructuring, was $1,276 million in 1994, $1,686
million in 1993, and $2,108 million in 1992. The table below depicts gross
minimum rental commitments, under non-cancellable leases; amounts related to
vacant space, the majority of which the company had reserved for in
restructuring charges; and sublease commitments. These amounts generally
reflect activities related to office space.
<TABLE><CAPTION>
Beyond
(Dollars in millions) 1995 1996 1997 1998 1999 1999
<S> <C> <C> <C> <C> <C> <C>
Gross rental commitments $ 1,220 $ 1,072 $ 925 $ 827 $ 717 $ 2,594
Vacant space 383 351 310 277 215 619
Sublease commitments 70 76 72 67 53 99
</TABLE>
P} long-term performance plan
In April 1994, stockholders approved the IBM 1994 Long-Term Performance Plan,
which provides incentive awards for 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 that may be
issued under the plan for awards granted wholly or partly in stock during the
five-year term of the plan is 29,105,600, which is 5% of the outstanding common
stock as determined on February 10, 1994. Prior to April 25, 1994, stock options
were issued under the IBM 1989 Long-Term Performance Plan and the IBM 1986 and
predecessor Stock Option Plans.
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.
65
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
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 1994 and 1993:
Number of shares under option 1994 1993
Balance at January 1 29,260,724 35,621,963
Options granted 6,863,219 13,744,772
Options exercised (235,044) --
Options terminated (1,825,582) (20,106,011)
---------- -----------
Balance at December 31 34,063,317 29,260,724
---------- -----------
Exercisable at December 31 16,666,537 14,636,324
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 subject to certain conditions for vesting and exercise.
The options exercised in 1994 were at an average option price of $46.42 per
share. There were no options exercised in 1993. The shares under option at
December 31, 1994, and December 31, 1993, were at option prices ranging from
$43.00 to $159.50 per share.
There were 27,842,801 and 6,011,858 unused shares carried forward and made
available for granting in the subsequent year as of December 31, 1994, and 1993,
respectively.
Q} stock purchase plan
The IBM Employees 1990 Stock Purchase 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 sufficient funds to buy a share.
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. On October 25, 1994, the Board of Directors approved management's plan to
revert to purchasing IBM common stock on the open market for sale to employees
as part of this plan.
During 1994, employees purchased 6,576,030 shares, including 906,629 treasury
shares, for which $350 million was paid to IBM. There were 15,126,471 reserved
unissued shares available for purchase under the plan at December 31, 1994.
66
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
R} retirement plans
The company and its subsidiaries have retirement plans covering substantially
all regular employees. The total cost of all plans for 1994, 1993, and 1992 was
$681 million, $1,525 million, and $838 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:
<TABLE><CAPTION>
U.S. Plan Non-U.S. Plans
1994 1993 1992 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Expected long-term rate of
return on plan assets 9.5% 9.5% 9.5% 5.5-9% 5-10% 5-12%
(Dollars in millions)
Service cost:
Benefits earned during the period $ 542 $ 571 $ 586 $ 467 $ 576 $ 603
Termination incentive expenses -- 263 355 -- -- --
Interest cost on the projected
benefit obligation 2,033 1,909 1,671 1,107 1,064 1,060
Return on plan assets:
Actual 327 (3,990) (1,216) 329 (3,036) (998)
Deferred (2,826) 1,605 (1,047) (1,540) 1,891 (166)
Net amortizations (65) (62) (88) 19 12 24
Curtailment losses -- 431 -- 269 215 --
------- ------- ------- ------- ------- -------
Net periodic pension cost $ 11 $ 727 $ 261 $ 651 $ 722 $ 523
------- ------- ------- ------- ------- -------
Total net periodic pension
cost for all non-U.S. plans $ 667 $ 798 $ 577
------- ------- -------
</TABLE>
Net periodic pension 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.
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 termination programs and
represent the immediate recognition of associated prior service cost and a
portion of previously unrecognized actuarial losses.
The curtailment losses and termination charges, referred to above, were accrued
as restructuring charges in 1993 and 1992.
67
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
In 1994, the company introduced a non-qualified U.S. Supplemental Executive
Retirement Plan (SERP) effective January 1, 1995, which will be phased in over
three years. The SERP, which is unfunded, provides eligible executives defined
pension benefits, outside the IBM Retirement Plan, based on average earnings,
years of service, and age at retirement. At December 31, 1994, the projected
benefit obligation was $64 million of which $61 million ($73 million of
unrecognized prior service cost and $12 million of unrecognized actuarial gains)
is subject to amortization. The remaining $3 million has been accrued in the
Consolidated Statement of Financial Position. Net periodic pension cost for this
plan was $3 million in 1994. These amounts are not reflected in the net periodic
pension cost and funded status of the U.S. retirement plan.
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:
<TABLE><CAPTION>
U.S. Plan Non-U.S. Plans
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Assumptions:
Discount rate 8.25% 7.25% 5.0-9.0% 5-9.25%
Long-term rate of
compensation increase 5.0% 5.0% 2.8-7.0% 2.8-6.6%
(Dollars in millions)
Actuarial present value of
benefit obligations:
Vested benefit obligation $ (22,553) $ (24,736) $ (15,454) $ (12,342)
Accumulated benefit obligation $ (24,186) $ (26,325) $ (16,743) $ (13,544)
Projected benefit obligation $ (25,783) $ (29,024) $ (18,751) $ (16,129)
Plan assets at fair value 26,780 28,198 17,424 16,159
---------- ---------- ---------- ----------
Projected benefit obligation less
than (in excess of) plan assets 997 (826) (1,327) 30
Unrecognized net loss (gain) 1,224 1,550 (17) (1,184)
Unrecognized prior service cost 248 1,282 276 304
Unrecognized net asset established
at January 1, 1986 (1,334) (1,474) (152) (145)
---------- ---------- ---------- ----------
Prepaid (accrued) pension cost recognized
in the statement of financial
position $ 1,135 $ 532 $ (1,220) $ (995)
---------- ---------- ---------- ----------
</TABLE>
The U.S. plan's projected benefit obligation decreased in 1994 primarily as a
result of a change in the discount rate and a plan amendment. The change in the
discount rate decreased the projected benefit obligation $3,055 million.
The plan amendment reduced the projected benefit obligation and unrecognized
prior service cost $959 million.
68
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
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 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 IBM
Retirement Plan Trust Fund through 1994. Through December 31, 1994, the
company has contributed 6,500,000 shares to the fund. 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. On October 5,
1994, the company announced major changes to the plan that take place starting
in 1995. Under a new formula, which will be phased in over five years,
retirement benefits will be determined based on points accumulated for each
year worked and final average compensation. To preserve benefits of employees
close to retirement, service and earnings credit will continue to accrue under
the current core formula through the year 2000 and upon retirement, current
employees will receive the benefit from either the new or current formulas,
whichever is higher. Benefits become vested upon the completion of five years of
service. The number of individuals receiving benefits at December 31, 1994 and
1993, was 85,009 and 77,664, respectively.
Non-U.S. Plans: Most subsidiaries and branches outside the United States have
retirement plans covering substantially all regular 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.
S} 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.
The accumulated postretirement benefit obligation was determined by application
of the terms of medical, dental, and life insurance plans, including the
effects of established maximums on covered costs, together with relevant
actuarial assumptions. These actuarial assumptions include healthcare cost
trend rates projected ratably from 12.0 percent in 1995 to 6 percent in the year
2007.
The effect of a 1 percent annual increase in these assumed cost trend rates
would increase the accumulated postretirement benefit obligation by
approximately $52 million; the annual costs would not be materially affected.
69
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
Net periodic postretirement benefit cost for the years ended December 31
included the following components:
1994 1993 1992
Expected long-term rate of
return on plan assets 9.5% 9.5% 9.5%
(Dollars in millions)
Service cost:
Benefits attributed
to service during the
period $ 51 $ 53 $78
Termination incentive
expenses -- -- 71
Interest cost on the accumulated
postretirement benefit
obligation 512 566 485
Return on plan assets:
Actual 22 (201) (67)
Deferred (125) 84 (59)
Net amortizations and other (38) 29 (61)
Curtailment loss -- 732 --
------- ---------- -----------
Net periodic postretirement
benefit cost $ 422 $ 1,263 $ 447
------- ---------- -----------
In the Consolidated Statement of Operations, the curtailment loss and
termination expenses referred to above are included in restructuring charges.
The table below provides information on the status of the plans.
The funded status at December 31 was as follows:
1994 1993
Assumed discount rate 8.25% 7.25%
(Dollars in millions)
Accumulated postretirement
benefit obligation:
Retirees $ (5,411) $ (5,761)
Fully eligible active
plan participants 567) (673)
Other active plan
participants (530) (927)
----------- -------------
Total (6,508) (7,361)
Plan assets at fair value 1,028 1,366
Accumulated postretirement benefit ----------- -------------
obligation in
excess of plan assets (5,480) (5,995)
Unrecognized net loss 505 1,431
Unrecognized prior service cost (744) (828)
----------- -------------
Accrued postretirement benefit
cost recognized
in the statement of
financial position $ (5,719) $ (5,392)
----------- -------------
70
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
In 1994, the accumulated postretirement benefit obligation decreased $649
million as a result of the change in the assumed discount rate.
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.
T} lines of credit
As part of the company's ongoing efforts toward greater efficiency 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.
Unused committed lines of credit from this global facility and other previously
existing committed and uncommitted lines of credit at December 31, 1994, were
$15.1 billion, compared to $15.7 billion at December 31, 1993. Interest rates on
borrowings vary from country to country depending on local market conditions.
U} sales and securitization of receivables
The company received total cash proceeds of approximately $12.6 billion and $6.8
billion in 1994 and 1993 from the sale and securitization of primarily trade
receivables. At year-end 1994, the company had a net balance of $1.8 billion in
assets under management from the securitization of lease and trade receivables.
This amount is $1.3 billion lower than the 1993 year-end balance of $3.1
billion. 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 December 31, 1993, Consolidated
Statement of Financial Position included $751 million of net assets that had
been reclassified pending the sale of FSC, as discussed on page 47.
V} 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 has priority for 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 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. See note Z, "Subsequent Events," on page
78 for additional information regarding this subject.
71
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
W} financial instruments
The following table summarizes the carrying amount and estimated fair value of
the company's significant financial instruments, derivative and non-derivative,
both on and off the balance sheet:
<TABLE><CAPTION>
At December 31, 1994 At December 31, 1993*
(Dollars in millions) Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 7,922 $ 7,922 $ 5,861 $ 5,861
Marketable securities 2,632 2,632 1,272 1,272
Loans and other long-term
receivables-net 3,857 3,813 3,609 3,609
Working capital financing
receivables-net 2,539 2,539 1,898 1,898
Long-term investments 68 68 179 178
Non-trade accounts payable
and accruals** (1,437) (1,437) (1,759) (1,759)
Short-term debt (9,570) (9,570) (12,097) (12,097)
Long-term debt (12,548) (12,000) (15,245) (15,840)
Derivatives:+
Interest rate and currency
swap agreements 2 201 (37) (147)
Option contracts 8 8 36 43
Forward exchange contracts -- -- 2 (45)
Financial guarantees -- (727) -- (749)
</TABLE>
*Reclassified to conform with 1994 presentation.
**Excludes amounts related to restructuring discussed in note J on pages 60 and
61.
+The estimated fair value of derivatives both on and off balance sheet at
December 31, 1994, consists of assets of $448 million and liabilities of $239
million.
In assessing the fair value of these financial instruments, 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 maturities. 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.
In the normal course of business, the company enters into a variety of
derivative instruments solely for the purpose of currency exchange rate and
interest rate risk management.
The majority of the company's derivative transactions relates to the matching
of liabilities to assets associated with its worldwide customer financing
business. The company issues debt, using the most efficient capital markets and
products, which may result in a currency or interest rate mismatch. Interest
rate or currency swaps are then used by the company to match the interest
rates and currencies of its debt to the related customer financing receivables.
72
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
To a much lesser extent, interest rate swaps are used to rebalance the fixed
versus floating mix on the company's "core" debt. Interest rate swap contracts
are principally one to five years in duration. The company also uses an internal
regional center to manage the cash of its subsidiaries in a cost effective
manner. This regional center principally uses currency swaps to deliver local
currency denominated funding predominantly to the company's European
subsidiaries. The terms of the currency swaps are generally less than five
years. Additionally, the company uses derivatives to limit its exposure to loss
resulting from fluctuations in foreign currency exchange rates on anticipated
cash transactions between foreign subsidiaries and the parent company. The
company receives significant dividends, intracompany royalties and net payments
for goods and services from its non-U.S. subsidiaries. In anticipation of these
foreign currency flows, and given the volatility of the currency markets, the
company selectively employs foreign currency options and foreign exchange
contracts to manage the currency risk. The terms of these instruments are
generally less than a year.
The company has used derivative instruments as an element of its risk management
strategy for many years. Although derivatives entail a risk of non-performance
by counterparties, the company manages this risk by establishing explicit dollar
and term limitations which correspond to the credit rating of each carefully
selected counterparty. The company has not sustained a material loss from these
instruments nor does it anticipate any material adverse effect on its results of
operations or financial condition in the future.
The notional value of derivative instruments held at year end, which provides
an indication of the extent of the company's involvement in such instruments but
does not represent its exposure to market risk, was as follows:
(Dollars in billions) 1994 1993*
Option contracts $ 4.4 $ 1.6
Interest rate and currency
swap agreements 19.2 17.2
Forward exchange contracts .6 .3
* Reclassified to conform with 1994 presentation.
The costs associated with entering into derivative contracts are generally
amortized over the life of the instruments and are not material to the company's
results. Unamortized premiums are included in prepaid assets. Interest rate
differentials accruing under interest rate swaps which receive hedge accounting
treatment are recognized over the life of the contracts in interest expense.
Derivative instruments which qualify as hedges of net investments in
subsidiaries are included in prepaid assets, and gains and losses are included
in stockholders' equity. For purchased options which hedge anticipated
transactions, gains and losses are deferred and recognized in other income in
the same period that the underlying transaction occurs or expires. At December
31, 1994, there were no material deferred gains or losses. All written options,
except those that qualify as hedges of net investments, are marked to market
monthly, as are some purchased options which do not qualify for hedge
accounting. These options appear on the balance sheet in prepaid assets or other
liabilities. The related gains and losses are recognized immediately in other
income. Although these options do not qualify for hedge accounting, they are
used by the company as part of its overall risk management program.
73
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
The company originates financing for customers in a variety of industries and
throughout the world. The company has a diversified portfolio of capital
equipment financings for end users. With the growth of the company's working
capital financing business in 1994, the concentration of such financings for
certain large dealers and remarketers of information industry products has
become more significant. All such loans are collateralized by the inventory
and accounts receivable of the dealers and remarketers. The company does not
believe that this risk will have a material adverse effect on its financial
position or results of operations.
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 were
approximately $.9 billion and $2 billion at December 31, 1994 and 1993
respectively, are not expected to have a material adverse effect on the
company's financial position or results of operations.
X} segment information
IBM is in the business of providing customer solutions through the use of
advanced information technologies. The company operates primarily in the single
industry segment that creates value by offering a variety of solutions that
include, either singularly or in some combination, services, software, systems,
products, financing, and technologies. The schedule on page 75 shows revenue by
classes of similar products or services. Financial information by geographic
area is summarized on pages 76 and 77.
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, power personal systems, and RISC System/6000
products. Other workstations includes display-based terminals and consumer and
financial systems. Storage consists of externally attached direct access
storage devices and tape storage devices. Other peripherals consists of advanced
function printers and telecommunication devices. OEM hardware consists primarily
of revenue from the sale of semiconductors and low-end storage files to
external customers.
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 represents a wide range
of service offerings including consulting, education, systems design and
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
74
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
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.
Revenue by Classes of Similar Products or Services
<TABLE><CAPTION>
Consolidated U.S. Only
<S> <C> <C> <C> <C> <C> <C>
(Dollars in millions) 1994 1993* 1992* 1994 1993* 1992*
Information technology:
Processors** $ 9,784 $ 10,071 $ 13,916 $ 3,235 $ 3,179 $ 4,818
Workstations:
Personal systems** 11,500 10,067 7,887 4,769 4,578 3,033
Other workstations** 1,538 2,006 2,671 463 689 874
Peripherals:
Storage** 3,551 4,808 6,105 1,375 1,898 2,400
Other peripherals** 2,006 2,149 2,970 810 901 1,202
OEM hardware 3,248 1,293 557 1,677 726 365
Software 11,346 10,953 11,103 3,926 3,898 3,883
Services 9,715 7,648 5,530 3,709 3,037 1,724
Maintenance 7,222 7,295 7,635 2,648 2,726 2,809
Financing and other 4,142 4,109 3,984 1,506 1,754 1,360
---------- ---------- ---------- --------- ---------- -------
Subtotal 64,052 60,399 62,358 24,118 23,386 22,468
Federal Systems Company - 2,317 2,165 - 2,317 2,165
---------- ---------- ---------- --------- ---------- -------
Total $ 64,052 $ 62,716 $ 64,523 $ 24,118 $ 25,703 $24,633
---------- ---------- ---------- --------- ---------- -------
</TABLE>
*Reclassified to conform with 1994 presentation.
**Hardware only, includes applicable rental revenue, excludes functions not
embedded, software, and maintenance.
75
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
Y} geographic areas
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 90 percent of the company's non-U.S. revenue. The remaining 10
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 1994, 1993, and 1992.
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.
76
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
(Dollars in millions) 1994 1993* 1992*
United States
Revenue -- Customers $ 24,118 $ 25,703 $ 24,633
Interarea transfers 6,336 7,297 7,524
----------- ------------ ------------
Total $ 30,454 $ 33,000 $ 32,157
Net earnings (loss) 969 (5,566) (5,545)
Assets at December 31 37,156 38,333 42,109
Europe/Middle East/Africa
Revenue -- Customers $ 23,034 $ 21,779 $ 24,971
Interarea transfers 1,787 1,071 1,154
----------- ------------ ------------
Total $ 24,821 $ 22,850 $ 26,125
Net earnings (loss) 1,086 (1,695) (1,728)
Assets at December 31 25,816 24,566 26,770
Asia Pacific
Revenue -- Customers $ 11,365 $ 10,020 $ 9,672
Interarea transfers 1,876 1,452 1,875
----------- ------------ ------------
Total $ 13,241 $ 11,472 $ 11,547
Net earnings (loss) 567 (443) 126
Assets at December 31 12,619 12,778 12,837
Americas
Revenue -- Customers $ 5,535 $ 5,214 $ 5,247
Interarea transfers 4,257 3,458 3,452
----------- ------------ ------------
Total $ 9,792 $ 8,672 $ 8,699
Net earnings (loss) 498 (251) 157
Assets at December 31 7,783 7,359 6,990
eliminations
Revenue $ (14,256) $ (13,278) $ (14,005)
Net (loss) earnings (99) (32) 125
Assets (2,283) (1,923) (2,001)
consolidated
Revenue $ 64,052 $ 62,716 $ 64,523
Net earnings (loss) 3,021 (7,987) (6,865)
Assets at December 31 81,091 81,113 86,705
----------- ------------ ------------
*Net (loss) earnings before effect of changes in accounting for postemployment
benefits (1993) and income taxes (1992).
77
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
Z} subsequent events
On January 11, 1995, the company commenced a tender offer to purchase for cash
any and all of the Series A Preferred Stock represented by 44.6 million
outstanding depositary shares for a price of $25.00 net per depositary share.
Under the offer, depositary shares tendered and purchased by the company will
not receive or otherwise be entitled to the regular quarterly cash
dividend expected to be paid for the first quarter of 1995 and also will not
receive any accrued dividends for that period. The offer is not conditioned upon
any minimum number of depositary shares being tendered. The offer and withdrawal
rights expired on February 8, 1995. The company has purchased 34.1 million
depositary shares under this offer.
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.
78
<PAGE>
<TABLE><CAPTION>
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
five-year comparison of selected financial data
(Dollars in millions except per share amounts) 1994 1993 1992 1991 1990
For the year:
<S> <C> <C> <C> <C> <C>
Revenue $ 64,052 $ 62,716 $ 64,523 $ 64,766 $ 68,931
Net earnings (loss) before
changes in accounting principles 3,021 (7,987) (6,865) (598) 5,967
Per share of common stock 5.02 (14.02) (12.03) (1.05) 10.42
Effect of accounting changes* -- (114) 1,900 (2,263) --
Per share of common stock -- (.20) 3.33 (3.96) --
Net earnings (loss) 3,021 (8,101) (4,965) (2,861) 5,967
Per share of common stock 5.02 (14.22) (8.70) (5.01) 10.42
Cash dividends paid on common stock 585 905 2,765 2,771 2,774
Per share of common stock 1.00 1.58 4.84 4.84 4.84
Investment in plant, rental machines
and other property 3,078 3,232 4,698 6,502 6,548
Return on stockholders' equity 13.6% -- -- -- 14.8%
At end of year:
Total assets $ 81,091 $ 81,113 $ 86,705 $ 92,473 $ 87,568
Net investment in plant, rental machines
and other property 16,664 17,521 21,595 27,578 27,241
Working capital 12,112 6,052 2,955 7,018 13,313
Total debt 22,118 27,342 29,320 26,947 19,545
Stockholders' equity 23,413 19,738 27,624 36,679 42,553
</TABLE>
*1993, postemployment benefits; 1992, income taxes; 1991, nonpension
postretirement benefits.
selected quarterly data
<TABLE><CAPTION>
(Dollars in millions Net Per Share Common Stock
------------------------
except per share Gross Earnings Earnings Stock Prices+
--------------------
<S> <C> <C> <C> <C> <C> <C> <C>
and stock prices) Revenue Profit (Loss) (Loss) Dividends High Low
1994 First quarter $ 13,373 $ 4,940 $ 392 $ .64 $ .25 $ 60.00 $ 51.38
Second quarter 15,351 6,104 689 1.14 .25 65.00 51.38
Third quarter 15,431 6,154 710 1.18 .25 71.38 54.50
Fourth quarter 19,897 8,086 1,230 2.06 .25 76.38 67.38
---------- --------- --------- --------- -------
Total $ 64,052 $ 25,284 $ 3,021 $ 5.02 $ 1.00
---------- --------- --------- --------- -------
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
---------- --------- --------- --------- -------
</TABLE>
*Includes charge of $114 million, or $.20 per common share, cumulative effect
of change in accounting for postemployment benefits.
**The sum of the quarter's earnings per share does not equal the year-to-date
earnings per share due to changes in average share calculations. This is in
accordance with prescribed reporting requirements.
+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.
79
<PAGE>
STOCKHOLDER INFORMATION
Corporate Offices
International Business Machines Corporation
Corporate Headquarters
One Old Orchard Road
Armonk, New York 10504
(914) 765-1900
IBM Stock
IBM common stock is listed on the New York Stock Exchange, on
other exchanges in the United States and around the world.
Annual Meeting
The IBM Annual Meeting of Stockholders will be held on Tuesday,
April 25, 1995 at 10 a.m. at the Ovens Auditorium, 2700 East
Independence Blvd., Charlotte, North Carolina.
IBM on the Internet
Financial results, news on new IBM products and services and
insights from company executives are available via IBM's home
page on the Internet. The address is http://www.ibm.com
General Information
For answers to general questions about IBM from within the
continental United States, call (800) 426-3333; from outside the
continental United States, call (602) 629-3200.
Hearing-Impaired Stockholders
Hearing-Impaired stockholders with access to a telecommunications
device (TTD) can communicated directly with First Chicago Trust
Company of New York by calling (201) 222-4489.
The IBM Annual Report is partially printed on
[logo] recycled paper and is recyclable.
Stockholder Communications
Stockholders in the United States and Canada can get quarterly
financial results, listen to a summary of Mr. Gerstner's Annual
Meeting remarks and hear voting results from the meeting by
calling (800) IBM-7800. Callers can also request printed copies
of the information via mail or fax. Stockholders residing
outside the United States or Canada should call (402) 573-9861.
IBM Stockholder Services
Stockholders with questions about their accounts should contact:
First Chicago Trust Company of New York
Mail Suite 4688
P.O. Box 2530
Jersey City, NJ 07303-2530
(201) 324-0405 or via Internet at: [email protected]
To transfer stocks, write to:
First Chicago Trust Company of New York
Stock Transfer Department
Mail Suite 4680
14 Wall Street
New York, New York 10005
(Registered mail is recommended when stock is mailed.)
Investors with other requests may write to:
IBM Stockholder Relations
IBM Corporation
One Old Orchard Road
Armonk, New York 10504
Literature for IBM Stockholders
The following literature on IBM is available without charge from
First Chicago Trust Company of New York, Suite 4688, P.O. Box
2530, Jersey City, New Jersey 07303-2530; (201) 324-0405.
The Form 10-K Annual Report and Form 10-Q Quarterly Reports to
the SEC provide additional information on IBM's business. The
10-K is issued in April; 10-Q reports are released in May, August
and November.
IBM Credit Corporation's Annual Report is available in March.
The IBM Dividend Reinvestment Plan booklet tells how stockholders
may automatically reinvest dividends to purchase additional IBM
stock.
"IBM and the Environment" reports on IBM's safety, energy and
environmental programs.
"Valuing Diversity: An Ongoing Commitment" reviews IBM's
philosophy on workforce diversity, equal opportunity, affirmative
action, and work/life balance. Programs, both within IBM and in
the community, that promote opportunities for women, minorities,
people with disabilities and Vietnam-era and disabled veterans
are also discussed.
*AIX, AS/400, DB2, HelpCenter, ISSC, Media Streamer, Nways, OS/2,
Person to Person, POWERparallel, PowerPC, RAMAC, RS/6000, S/390,
SP2, Scalable POWERparallel System, System/36, System/390,
ThinkPad, ValuePoint, VisualAge, VoiceType and Workplace Shell
are trademarks or registered trademarks of International Business
Machines Corporation. CATIA is a trademark of Dassault Systemes.
Pentium is a trademark of Intel Corporation. PRODIGY is a
service mark and registered trademark of Prodigy Services
Company.
Printed In the United States.
81
Exhibit VII
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 1994
on Form 10-K, hereby constitutes and appoints Louis V. Gerstner, Jr.,
Jerome B. York, Jeffrey D. Serkes, John E. Hickey and Nicholas J. DeRoma
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 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 28th day of February 1995.
/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 1994
on Form 10-K, hereby constitutes and appoints Louis V. Gerstner, Jr.,
Jerome B. York, Jeffrey D. Serkes, John E. Hickey and Nicholas J. DeRoma
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 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 28th day of February 1995.
/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 1994
on Form 10-K, hereby constitutes and appoints Louis V. Gerstner, Jr.,
Jerome B. York, Jeffrey D. Serkes, John E. Hickey and Nicholas J. DeRoma
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 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 28th day of February 1995.
/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 1994
on Form 10-K, hereby constitutes and appoints Louis V. Gerstner, Jr.,
Jerome B. York, Jeffrey D. Serkes, John E. Hickey and Nicholas J. DeRoma
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 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 28th day of February 1995.
/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 1994
on Form 10-K, hereby constitutes and appoints Louis V. Gerstner, Jr.,
Jerome B. York, Jeffrey D. Serkes, John E. Hickey and Nicholas J. DeRoma
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 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 28th day of February 1995.
/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 1994
on Form 10-K, hereby constitutes and appoints Louis V. Gerstner, Jr.,
Jerome B. York, Jeffrey D. Serkes, John E. Hickey and Nicholas J. DeRoma
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 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 28th day of February 1995.
/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 1994
on Form 10-K, hereby constitutes and appoints Louis V. Gerstner, Jr.,
Jerome B. York, Jeffrey D. Serkes, John E. Hickey and Nicholas J. DeRoma
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 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 28th day of February 1995.
/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 1994
on Form 10-K, hereby constitutes and appoints Louis V. Gerstner, Jr.,
Jerome B. York, Jeffrey D. Serkes, John E. Hickey and Nicholas J. DeRoma
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 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 28th day of February 1995.
/s/ Lucio A. Noto
---------------------------
Lucio A. Noto
<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 1994
on Form 10-K, hereby constitutes and appoints Louis V. Gerstner, Jr.,
Jerome B. York, Jeffrey D. Serkes, John E. Hickey and Nicholas J. DeRoma
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 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 28th day of February 1995.
/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 1994
on Form 10-K, hereby constitutes and appoints Louis V. Gerstner, Jr.,
Jerome B. York, Jeffrey D. Serkes, John E. Hickey and Nicholas J. DeRoma
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 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 28th day of February 1995.
/s/ Alex Trotman
--------------------------
Alex Trotman
<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 1994
on Form 10-K, hereby constitutes and appoints Louis V. Gerstner, Jr.,
Jerome B. York, Jeffrey D. Serkes, John E. Hickey and Nicholas J. DeRoma
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 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 28th day of February 1995.
/s/ Charles M. Vest
-----------------------------
Charles M. Vest
<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 1994
on Form 10-K, hereby constitutes and appoints Louis V. Gerstner, Jr.,
Jerome B. York, Jeffrey D. Serkes, John E. Hickey and Nicholas J. DeRoma
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 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 28th day of February 1995.
/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 1994
on Form 10-K, hereby constitutes and appoints Louis V. Gerstner, Jr.,
Jerome B. York, Jeffrey D. Serkes, John E. Hickey and Nicholas J. DeRoma
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 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 28th day of February 1995.
/s/ Edgar S. Woolard, Jr.
-----------------------------------
Edgar S. Woolard, 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 1994
on Form 10-K, hereby constitutes and appoints Louis V. Gerstner, Jr.,
Jerome B. York, Jeffrey D. Serkes, John E. Hickey and Nicholas J. DeRoma
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 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 28th day of February 1995.
/s/ Jerome B. York
----------------------------
Jerome B. York
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
IBM CORPORATION'S FINANCIAL STATEMENTS FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 7,922
<SECURITIES> 2,632
<RECEIVABLES> 14,018
<ALLOWANCES> 0
<INVENTORY> 6,334
<CURRENT-ASSETS> 41,338
<PP&E> 44,820
<DEPRECIATION> 28,156
<TOTAL-ASSETS> 81,091
<CURRENT-LIABILITIES> 29,226
<BONDS> 0
<COMMON> 7,308
0
1,081
<OTHER-SE> 15,024
<TOTAL-LIABILITY-AND-EQUITY> 81,091
<SALES> 32,344
<TOTAL-REVENUES> 64,052
<CGS> 21,300
<TOTAL-COSTS> 38,768
<OTHER-EXPENSES> 20,279
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,227
<INCOME-PRETAX> 5,155
<INCOME-TAX> 2,134
<INCOME-CONTINUING> 3,021
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,021
<EPS-PRIMARY> 5.02
<EPS-DILUTED> 4.95
</TABLE>
