- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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, 1995
1-2360
(Commission File Number)
INTERNATIONAL BUSINESS MACHINES CORPORATION
(Exact name of registrant as specified in its charter)
NEW YORK 13-0871985
(State of incorporation) (IRS employer identification number)
ARMONK, NEW YORK 10504
(Address of principal executive offices) (Zip Code)
914-765-1900
(Registrant's telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
VOTING SHARES OUTSTANDING NAME OF EACH EXCHANGE
TITLE OF EACH CLASS AT MARCH 11, 1996 ON WHICH REGISTERED
- --------------------------------- -------------------------- ------------------------
<S> <C> <C>
Capital stock, par value 543,803,955 New York Stock Exchange
$1.25 per share Chicago 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
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
7% Debentures due 2025 New York Stock Exchange
7% Debentures due 2045 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 11, 1996 was approximately $63.8 billion.
Documents incorporated by reference:
Portions of IBM's Annual Report to Stockholders for the year ended
December 31, 1995 into Parts I and II of Form 10-K.
Portions of IBM's definitive Proxy Statement dated March 18, 1996 into
Part III of Form 10-K.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS:
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,
financing and technologies. The company provides these solutions to its
customers worldwide through sales and professional services units in North
America, Europe/Middle East/Africa, Asia Pacific, and Latin America.
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
under reasonable terms and conditions. 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 1995 Annual Report to
Stockholders and is incorporated herein by reference:
1. Segment information and revenue by classes of similar products or
services--Pages 75 and 76.
2. Financial information by geographic areas--Pages 77 and 78.
3. Amount spent during each of the last three years on research and
development activities--Page 61.
4. Financial information regarding environmental activities--Pages 62 and
63.
5. The number of persons employed by the registrant--Page 49.
6. The management discussion overview--Page 36.
ITEM 2. PROPERTIES:
At December 31, 1995, IBM's manufacturing and development facilities in the
United States had aggregate floor space of 52.4 million square feet, of which
42.8 million was owned and 9.6 million was leased. Of these amounts, 9.7 million
square feet was vacant and 1.5 million square feet was being leased to non-IBM
businesses. Similar facilities in 17 other countries totaled 16.0 million square
feet, of which 12.8 million was owned and 3.2 million was leased. Of these
amounts, .8 million square feet was vacant and .5 million square feet was being
leased to non-IBM businesses.
Although improved production techniques, productivity gains, and
restructuring actions have resulted in reduced manufacturing floor space,
continuous upgrading of facilities is essential to maintain technological
leadership, improve productivity, and meet customer demand. For additional
information on expenditures for plant, rental machines, and other property,
refer to "Investments" on page 44 of IBM's 1995 Annual Report to Stockholders
which is incorporated herein by reference.
1
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT (AT MARCH 26, 1996):
<TABLE>
<CAPTION>
OFFICER
AGE SINCE
--- -------
<S> <C> <C>
Chairman of the Board of Directors and Chief Executive Officer
Louis V. Gerstner, Jr.(1)..................................................... 54 1993
Senior Vice Presidents
J. Thomas Bouchard, Human Resources.......................................... 55 1994
Nicholas M. Donofrio, Group Executive........................................ 50 1995
J. Bruce Harreld, Strategy................................................... 45 1995
Paul M. Horn, Research....................................................... 49 1996
Ned C. Lautenbach, Group Executive........................................... 52 1987
Lawrence R. Ricciardi, General Counsel....................................... 55 1995
Robert M. Stephenson, Group Executive........................................ 57 1995
G. Richard Thoman, Chief Financial Officer................................... 51 1993
John M. Thompson, Group Executive............................................ 53 1989
Patrick A. Toole, Group Executive............................................ 58 1984
Vice Presidents
James M. Alic, Controller.................................................... 53 1995
John E. Hickey, Secretary.................................................... 52 1994
Jeffrey D. Serkes, Treasurer................................................. 37 1994
</TABLE>
- ------------
(1) Member of the Board of Directors.
All officers are elected by the Board of Directors and serve until the next
election of officers in conjunction with the annual meeting of the stockholders
as provided in the By-laws. Each officer named above, with the exception of
James M. Alic, J. Thomas Bouchard, Louis V. Gerstner, Jr., J. Bruce Harreld,
Lawrence R. Ricciardi, Jeffrey D. Serkes, and G. Richard Thoman, has been an
executive of IBM or its subsidiaries during the past five years.
Mr. Alic was with Reed Elsevier, a publishing and information business, as
chairman of Reed Exhibition Companies, Worldwide, from 1994 until joining IBM in
1995. From 1991 to 1994, he was president of Reed Exhibition Companies, North
America. Prior to that he held a number of line management and executive staff
positions at RCA Corporation.
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, an international consumer products 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. Harreld was president of Boston Chicken, Inc., a company which operates
and franchises foodservice stores, from 1993 until joining IBM in 1995. Prior to
that he was senior vice president, marketing and information services, at Kraft
General Foods, Inc. where he also served as the company's chief information
officer from 1989 to 1992.
Mr. Ricciardi was president of RJR Nabisco, Inc., an international consumer
products company, from 1993 until joining IBM in 1995. From 1989 to 1993, he
also served as executive vice
2
<PAGE>
president and general counsel at RJR Nabisco, Inc.. Prior to 1989, he was
executive vice president and general counsel of American Express Travel Related
Services Co., Inc.
Mr. Serkes was vice president and deputy treasurer at RJR Nabisco, Inc., an
international consumer products 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 at
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-chief executive
officer of American Express Travel Related Services Co., Inc., and chief
executive officer of American Express International from 1989 to 1992.
ITEM 3. LEGAL PROCEEDINGS:
Refer to note N "Contingencies" on page 63 of IBM's 1995 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 page 79 and the inside back cover of IBM's 1995 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, Chicago Stock
Exchange and Pacific Stock Exchange. There were 652,923 common stockholders of
record at March 11, 1996.
ITEM 6. SELECTED FINANCIAL DATA:
Refer to page 79 of IBM's 1995 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 49 of IBM's 1995 Annual Report to Stockholders
which are incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
Refer to pages 34 and 35 and 50 through 78 of IBM's 1995 Annual Report to
Stockholders which are incorporated herein by reference. Also refer to the
Financial Statement Schedule on page S-1 of this Form.
3
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE:
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:
Refer to pages 5 through 7 of IBM's definitive Proxy Statement dated March
18, 1996 which are incorporated herein by reference solely as they relate to
this item.
ITEM 11. EXECUTIVE COMPENSATION:
Refer to pages 13 through 23 of IBM's definitive Proxy Statement dated March
18, 1996, which are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
(A) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS:
Not applicable.
(B) SECURITY OWNERSHIP OF MANAGEMENT:
Refer to the section entitled "Common Stock and Total Stock-based
Holdings" appearing on pages 11 and 12 of IBM's definitive Proxy
Statement dated March 18, 1996, which is incorporated herein by
reference solely as it relates to this item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
Refer to page 10 "Other Relationships" of IBM's definitive Proxy Statement
dated March 18, 1996, 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 1995 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,
1995, 1994 and 1993 (page 50).
Consolidated Statement of Financial Position at December 31, 1995 and
1994 (page 51).
Consolidated Statement of Cash Flows for the years ended December 31,
1995, 1994 and 1993 (page 52).
Consolidated Statement of Stockholders' Equity at December 31, 1995,
1994 and 1993 (page 53).
Notes to Consolidated Financial Statements (pages 54 through 78).
4
<PAGE>
2. FINANCIAL STATEMENT SCHEDULES REQUIRED TO BE FILED BY ITEM 8 OF THIS
FORM:
SCHEDULE
PAGE NUMBER
- ---- --------
8 Report of Independent Accountants on Financial Statement
Schedule.
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.
3. EXHIBITS:
INCLUDED IN THIS FORM 10-K:
I-- Computation of Fully Diluted Earnings Per Share.
II-- Computation of Ratio of Earnings to Fixed Charges and
Earnings to Combined Fixed Charges and Preferred Stock
Dividends.
III-- Parents and Subsidiaries.
IV-- Consent of Independent Accountants.
V-- Additional Exhibits
(a) Supplemental Consolidated Statement of Operations--1995
and 1994.
VI-- The By-laws of IBM as amended through January 30, 1996.
VII-- IBM's 1995 Annual Report to Stockholders, certain sections
of which have been incorporated herein by reference.
VIII-- Powers of Attorney.
IX-- Financial Data Schedule.
X-- IBM Board of Directors Deferred Compensation and Equity
Award Plan.
XI-- Amendment to Employment Agreement for L.V. Gerstner, Jr.
dated as of January 1, 1996.
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.
-- 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 pages 10 and 11 of IBM's definitive Proxy Statement
dated March 18, 1996, 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 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.
5
<PAGE>
-- 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.
-- The instruments defining the rights of holders of the 7% Debentures
due 2025 and the 7% Debentures due 2045 are Exhibit 2 and 3 to Form
8-K, filed on October 30, 1995, and are hereby incorporated by
reference.
-- The IBM Supplemental Executive Retirement Plan is Exhibit IX to Form
10-K for the year ended December 31, 1994, and is hereby incorporated
by reference.
-- The IBM Extended Tax Deferred Savings Plan is Exhibit X to Form 10-K
for the year ended December 31, 1994, and is hereby incorporated by
reference.
-- IBM's definitive Proxy Statement dated March 18, 1996, certain
sections of which have been incorporated herein by reference.
(b) REPORTS ON FORM 8-K:
A Form 8-K dated October 30, 1995, was filed to incorporate by reference
into Registration Statement No. 33-50537 on Form S-3, effective October
26, 1993, the Underwriting Agreement dated October 25, 1995, among
International Business Machines Corporation, Merrill Lynch, Pierce, Fenner
& Smith Incorporated, CS First Boston Corporation, Goldman, Sachs & Co.,
J.P. Morgan Securities Inc., Morgan Stanley & Co. Incorporated and Salomon
Brothers Inc. In addition, the Form of the $600 million 7% Debenture due
2025 and the Form of the $150 million 7% Debenture due 2045 were
incorporated by reference into Registration Statement No. 33-50537 on Form
S-3, effective October 26, 1993 and were part of this Form 8-K. No
financial statements were filed with the Form 8-K.
6
<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 26, 1996
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------- --------------- --------------------------------
<C> <S> <C> <C>
/s/ G. RICHARD THOMAN Senior Vice March 26, 1996
................................. President
(G. RICHARD THOMAN) and Chief
Financial
Officer
/s/ JAMES M. ALIC Vice President March 26, 1996
................................. and
(JAMES M. ALIC) Controller
\
|
CATHLEEN BLACK Director |
HAROLD BROWN Director |
JUERGEN DORMANN Director |
NANNERL O. KEOHANE Director |
CHARLES F. KNIGHT 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 | March 26, 1996
|
|
|
/
</TABLE>
7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Stockholders and Board of Directors of
INTERNATIONAL BUSINESS MACHINES CORPORATION
Our audits of the consolidated financial statements referred to in our report
dated January 19, 1996 (which refers to the change in the method of accounting
for postemployment benefits in 1993), appearing on page 35 of the 1995 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
- ------------------------
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, N.Y. 10036
January 19, 1996
8
<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>
1995
Account deducted from assets:
Allowance for doubtful accounts
--Current............................................. $719 $ 71 $790
----- ----- -----
----- ----- -----
--Non-current......................................... $166 $ 8 $174
----- ----- -----
----- ----- -----
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
----- ----- -----
----- ----- -----
</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 1995 and 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 1995, approximate less than three and
one-half percent of the company's current receivables and one and one-half
percent of the company's non-current receivables. The allowances 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.
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>
(2) Plan of acquisition, reorganization, arrangement, Not applicable
liquidation or succession.
(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 January 30, 1996. VI
(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 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 on 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.
The instruments defining the rights of the holders of the
7% Debentures due 2025 and the 7% Debentures due 2045 are
Exhibits 2 and 3 to Form 8-]K, filed on October 30, 1995,
and 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 "Directors' Compensation" on pages 10 and 11 of
IBM's definitive Proxy Statement dated March 18, 1996,
and is hereby incorporated by reference.
The IBM Supplemental Executive Retirement Plan is Exhibit
IX to Form 10-K for the year ended December 31, 1994, and
is hereby incorporated by reference.
The IBM Extended Tax Deferred Savings Plan is Exhibit X to
Form 10-K for the year ended December 31, 1994, and is
hereby incorporated by reference.
The IBM Board of Directors Deferred Compensation and Equity X
Award Plan.
The IBM Non-Employee Directors Stock Option Plan is
Appendix B to IBM's definitive Proxy Statement dated
March 14, 1995, and is hereby incorporated 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.
</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>
Amendment to Employment Agreement for L.V. Gerstner, Jr. XI
dated as of January 1, 1996.
(11) Statement re computation of per share earnings. I
(12) Statement re computation of ratios. II
(13) Annual report to security holders. VII
(18) Letter re change in accounting principles. Not applicable
(19) Previously unfiled documents. Not applicable
(21) Subsidiaries of the registrant. III
(22) Published report regarding matters submitted to vote of Not applicable
security holders.
(23) Consents of experts and counsel. IV
(24) Powers of attorney. VIII
(27) Financial Data Schedule. IX
(28) Information from reports furnished to state insurance Not applicable
regulatory authorities.
(99) Additional exhibits. V
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT I
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
UNDER TREASURY STOCK METHOD SET FORTH IN
ACCOUNTING PRINCIPLES BOARD OPINION NO. 15
YEAR ENDED DECEMBER 31:
-----------------------------------------------------------------------
1995 1994 1993* 1992* 1991*
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Number of shares on which
published earnings per
share is based:
Average outstanding
during year........ 569,384,029 584,958,699 573,239,240 570,896,489 572,003,382
Add--Incremental shares
under stock compensa-
tion and stock purchase
plans.................. 9,223,139 4,308,269 -- -- --
--Incremental shares
related to 5 3/4% CGI
convertible bonds
(average).............. 5,291,098 7,715,391 -- -- --
----------- ----------- ----------- ----------- -----------
Number of shares on which
fully diluted earnings
per share is based..... 583,898,266 596,982,359 573,239,240 570,896,489 572,003,382
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net earnings (loss)
applicable to common
shareholders
(millions)............. $4,116 $2,937 $(8,148) $(4,965) $(2,861)
--Net earnings (loss)
effect of interest on 5
3/4% CGI convertible
bonds (millions)....... 1 19 -- -- --
----------- ----------- ----------- ----------- -----------
Net earnings (loss) on
which fully diluted
earnings per share is
based (millions)....... $4,117 $2,956 $(8,148) $(4,965) $(2,861)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Fully diluted earnings
(loss) per share....... $7.05 $4.95 $(14.22) $(8.70) $(5.01)
Published earnings (loss)
per share.............. $7.23 $5.02 $(14.22) $(8.70) $(5.01)
</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.
<TABLE>
<CAPTION>
EXHIBIT II
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(UNAUDITED)
(DOLLARS IN MILLIONS)
YEAR ENDED DECEMBER 31:
------------------------------------------------
1995 1994 1993 1992 1991(2)
------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C>
Earnings before income taxes and change in
accounting principle(1)......................... $7,910 $5,253 $(8,432) $(8,861) $ 234
Add:
Fixed charges, excluding capitalized
interest.................................... 1,972 2,450 2,853 3,348 3,269
------ ------ ------- ------- ------
Earnings as adjusted............................ $9,882 $7,703 $(5,579) $(5,513) $3,503
------ ------ ------- ------- ------
------ ------ ------- ------- ------
Fixed charges:
Interest expense.............................. $1,591 $2,025 $ 2,291 $ 2,645 $2,584
Capitalized interest.......................... 23 20 46 101 143
Portion of rental expense representative of
interest.................................... 381 425 562 703 685
------ ------ ------- ------- ------
Total fixed charges............................. $1,995 $2,470 $ 2,899 $ 3,449 $3,412
------ ------ ------- ------- ------
------ ------ ------- ------- ------
Preferred stock dividends(3).................... 37 144 47 0 0
------ ------ ------- ------- ------
Combined fixed charges and preferred stock
dividends..................................... $2,032 $2,614 $ 2,946 $ 3,449 $3,412
------ ------ ------- ------- ------
------ ------ ------- ------- ------
Ratio of earnings to fixed charges.............. 5.0 3.1 (A) (A) 1.0
Ratio of earnings to combined fixed charges and
preferred stock dividends..................... 4.9 2.9 (A) (A) 1.0
</TABLE>
- ------------
<TABLE>
<C> <S>
(1) Earnings before income taxes and changes in accounting principle excludes the company's
share in the income and losses of less-than-fifty percent-owned affiliates.
(2) Restated for AICPA Statement of Position, "Software Revenue Recognition."
(3) The company reported preferred stock dividends and transaction costs of $62 million for
the year ended December 31, 1995. Excluded from the ratio computation are transaction
costs of $42 million relating to the repurchase of Series A 7 1/2 percent preferred
stock depositary shares. Included are preferred stock dividends of $20 million, or $37
million representing the pre-tax earnings which would be required to cover such
dividend requirements based on IBM's effective income tax rate. For the years ended
December 31, 1994 and 1993, preferred stock dividends are also on a pre-tax basis.
(A) No ratios are shown for these periods as earnings were insufficient to cover fixed
charges and combined fixed charges and preferred stock dividends. As a result of the
net loss incurred for the year ended December 31, 1993 earnings were inadequate to
cover fixed charges and combined fixed charges and preferred stock dividends by $8,478
million and $8,525 million, respectively. As a result of the net loss incurred for the
year ended December 31, 1992, earnings were inadequate to cover fixed charges by $8,962
million.
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT III
PARENTS AND SUBSIDIARIES
AS OF DECEMBER 31, 1995
PERCENTAGE OF
VOTING
STATE OR COUNTRY SECURITIES
OF INCORPORATION OWNED BY ITS
OR ORGANIZATION IMMEDIATE PARENT
----------------- ----------------
<S> <C> <C>
Registrant:
International Business Machines Corporation......... New York
Subsidiaries:
IBM Credit Corporation.............................. Delaware 100
Integrated Systems Solutions Corp................... Delaware 100
Lotus Development Corporation....................... Massachusetts 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(F)
IBM Australia Ltd. ............................... Australia 100
IBM Bahamas Ltd. ................................. Bahamas 100
IBM de Bolivia, S.A. ............................. Bolivia 100
IBM Brasil-Industria, Maquinas e Servicos Ltda.... Brazil 100(F)
IBM Canada Limited--IBM Canada Limitee............ Canada 100
IBM China Company Limited......................... China 100
IBM de Chile, S.A.C. ............................. Chile 100(F)
IBM de Colombia, S.A. ............................ Colombia 90(A)
IBM Middle East FZE............................... United Arab 100
Emirates
IBM del Ecuador, C.A. ............................ Ecuador 100
IBM Storage Products Kft. ........................ Hungary 100
Tata Information Systems Ltd. (TISL).............. India 50
IBM Japan, Ltd. .................................. Japan 100
IBM Korea, Inc. .................................. Korea (South) 100
Grupo IBM Mexico, S.A. de C.V. ................... Mexico 100(A)
IBM de Mexico, S.A. ............................ Mexico 100(A)
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 98(A)
IBM Philippines, Incorporated..................... Philippines 100(A)
IBM Romania Srl. ................................. Romania 100
IBM Singapore Pte. Ltd ........................... Singapore 100
IBM Taiwan Corporation............................ Taiwan 100
Thai Systems Corporation Ltd. .................... Thailand 100
IBM Thailand Company Ltd. ........................ Thailand 100(A)
IBM del Uruguay, S.A. ............................ Uruguay 100
IBM de Venezuela, S.A. ........................... Venezuela 100
IBM Vietnam Company............................... Vietnam 100
IBM Central Europe & Russia Inc. ................. Delaware 100
IBM Oesterreiche Internationale Bueromaschinen
Gesellschaft m.b.H. ............................ Austria 100
IBA (International Belarussian Alliance).......... Belarus Republic 45
International Business Machines of Belgium
S.A. ........................................... Belgium 100
</TABLE>
<PAGE>
PARENTS AND SUBSIDIARIES
AS OF DECEMBER 31, 1995--(CONTINUED)
<TABLE>
<CAPTION>
PERCENTAGE OF
VOTING
STATE OR COUNTRY SECURITIES
OF INCORPORATION OWNED BY ITS
OR ORGANIZATION IMMEDIATE PARENT
----------------- ----------------
<S> <C> <C>
Business Computers Botswana (PTY) Limited......... Botswana 100(A)
IBM Bulgaria Ltd. ................................ Bulgaria 100
IBM Croatia Ltd./ IBM Hrvatska 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(A)
IBM Eurocoordination, S.A. ....................... France --(B)
IBM Europe Middle East Africa, S.A................ France 100(A)
IBM Beteiligungs GmbH............................. Germany 100
IBM Deutschland GmbH.............................. Germany 82(D)
International Business Machines Corporation
Magyarorszagi Kft. ............................. Hungary 100
IBM International Treasury Services Company....... Ireland --(E)
IBM Ireland Ltd. ................................. Ireland 100
IBM SEMEA S.p.A. ................................. Italy 100
IBM Hellas Information Handling Systems S.A. ... Greece 100(C)
IBM Israel Ltd. ................................ Israel 100(C)
Companhia IBM Portuguesa, S.A. ................. Portugal 100
IBM (International Business Machines) Turk Ltd.
Sirketi....................................... Turkey 98(C)
IBM South Africa Group Ltd. .................... South Africa 52
QuanTech.......................................... Lebanon 15
European Return Service B.V. ..................... Netherlands 100
IBM International Centre for Asset Management
N.V. ........................................... Netherlands 100
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(D)
IBM East Europe/Asia Ltd. ........................ Russia 100
IBM Slovenija d.o.o. ............................. Slovenia 100
International Business Machines, S.A. ............ Spain 100(F)
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
International Business Machines Limited........... United Kingdom 100
Bedford Investments (Private) Ltd. ............... Zimbabwe 100
</TABLE>
- ------------
(A) Minor percentage held by other IBM shareholders, subject to repurchase
option.
(Footnotes continued on following page)
<PAGE>
(Footnotes continued from preceding page)
<TABLE>
<S> <S>
(B) 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.
(C) Minority percentage owned by IBM World Trade Corporation.
(D) Remaining percentage owned by another wholly-owned IBM company.
(E) 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.
(F) Minor percentage owned by another wholly-ouwned IBM Company.
</TABLE>
EXHIBIT IV
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 33-65119) of International Business Machines Corporation of our report dated
January 19, 1996 appearing on page 35 of the 1995 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 8 of this Form 10-K.
/s/ PRICE WATERHOUSE LLP
- ------------------------
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, N.Y. 10036
March 26, 1996
EXHIBIT V
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 pre-tax
charge of $663 million which covered work force and asset reductions ($626
million) and a software writedown ($37 million), as well as a pre-tax gain of
$175 million due to settlement of certain contractual obligations resulting from
the 1994 sale of the Federal Systems Company (FSC) recorded in the fourth
quarter of 1995. The 1995 results also exclude the effects of the third quarter
charge of $1,840 million associated with the Lotus Development Corp.
acquisition. The 1994 results exclude the effects of the FSC sale and a change
in software amortization periods adopted in the first quarter of 1994. This
supplemental statement is shown in Exhibit V(a).
The Lotus Development Corp. charge is discussed on pages 47 to 48 of IBM's
1995 Annual Report to Stockholders. The sale of FSC is discussed on page 48,
while the software change is discussed on page 40.
<TABLE>
<CAPTION>
EXHIBIT V(a)
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
SUPPLEMENTAL CONSOLIDATED STATEMENT OF OPERATIONS*
1995 AND 1994
(UNAUDITED)
1995 1994
------- -------
(DOLLARS IN
MILLIONS EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Revenue:
Hardware sales......................................................... $35,600 $32,344
Services............................................................... 12,714 9,715
Software............................................................... 12,657 11,346
Maintenance............................................................ 7,409 7,222
Rentals and financing.................................................. 3,560 3,425
------- -------
Total revenue............................................................ 71,940 64,052
Cost:
Hardware sales......................................................... 21,863 21,300
Services............................................................... 10,041 7,769
Software............................................................... 4,391 4,384
Maintenance............................................................ 3,652 3,635
Rentals and financing.................................................. 1,589 1,384
------- -------
Total cost............................................................... 41,536 38,472
Gross Profit............................................................. 30,404 25,580
Operating expenses:
Selling, general and administrative.................................... 16,315 16,298
Research, development and engineering.................................. 4,170 4,363
------- -------
Total operating expenses................................................. 20,485 20,661
Operating income......................................................... 9,919 4,919
Other income, principally interest....................................... 947 1,377
Interest expense......................................................... 725 1,227
------- -------
Earnings before income taxes............................................. 10,141 5,069
Provision for income taxes............................................... 3,807 2,104
------- -------
Net earnings............................................................. 6,334 2,965
Preferred stock dividends and transaction costs.......................... 62 84
Net earnings applicable to common shareholders........................... $ 6,272 $ 2,881
------- -------
------- -------
Net earnings per share common stock...................................... $ 11.02 $ 4.92
------- -------
------- -------
Average number of common shares outstanding (Millions)................... 569.4 585.0
</TABLE>
- ------------
* See text in Exhibit V
<PAGE>
EXHIBITS OMITTED FROM THIS COPY
- --------------------------------------------------------------------------------
IBM'S 1995 ANNUAL REPORT TO STOCKHOLDERS
IBM'S DEFINITIVE PROXY STATEMENT DATED MARCH 18, 1996
POWERS OF ATTORNEY
THE BY-LAWS OF IBM
IBM BOARD OF DIRECTORS DEFERRED COMPENSATION AND EQUITY AWARD PLAN
AMENDMENT TO EMPLOYMENT AGREEMENT FOR L.V. GERSTNER, JR.
FINANCIAL DATA SCHEDULE
Copies of these exhibits may be obtained without charge from the First Chicago
Trust Company of New York, Suite 4688, P. O. Box 2530, Jersey City, New Jersey
07303-2530.
Printed on Recycled Paper
EXHIBIT VI
BY-LAWS
of
INTERNATIONAL BUSINESS MACHINES CORPORATION
Adopted April 29, 1958
As Amended Through
January 30, 1996
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
<PAGE>
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
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
<PAGE>
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
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
<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
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.
<PAGE>
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.
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.
<PAGE>
-- 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
(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.
<PAGE>
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.
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 twelve, 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
<PAGE>
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
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 threat.
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.
<PAGE>
SECTION 12. Retirement of Directors. The Board may prescribe a
retirement policy for directors on or after reaching a certain age,
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
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
<PAGE>
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
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
<PAGE>
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.
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
<PAGE>
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
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.
<PAGE>
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;
(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.
SECTION 12. Controller. The Controller shall:
(a) have control of all the books of account of the Corporation;
<PAGE>
(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
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
<PAGE>
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
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. The shares of the Corporation shall be
represented by certificates, or shall be uncertificated shares. 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. To the extent that shares are
represented by certificates, such certificates of stock shall be signed in
<PAGE>
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, provided
such shares are represented by a certificate, or accompanied by a duly
executed stock transfer power and the payment of all 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 certificated or
uncertificated 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
<PAGE>
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
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.
<PAGE>
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
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.
<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
EXHIBIT X
Effective Spring 1995,
except ARTICLE III(A)
which became effective January 1996.
IBM Board of Directors
Deferred Compensation and Equity Award Plan
-------------------------------------------
ARTICLE I. Purpose
-------
International Business Machines Corporation ("IBM"), has, pursuant to
resolutions adopted on February 28, 1995, amended and restated the Deferred
Compensation and Equity Award Plan (the "Plan") which was established by
resolutions of the Board adopted on July 27, 1993 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 two bookkeeping accounts for each Outside Director, a Cash
Account and a Promised Fee 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. Payment and Deferral of Fees
----------------------------
(a) Payment in Deferred Shares; Amounts Accrued Under Retirement Plan
-----------------------------------------------------------------
Sixty percent of the annual retainer fees to be earned by each outside
Director ("Fees") shall be payable in the form of a promise by IBM to
deliver Shares ("Promised Fee Shares") pursuant to ARTICLE VI hereof.
The Payment of such Promised Fee Shares shall be deferred until the
Outside Director ceases to be a member of the Board.
Notwithstanding anything herein to the contrary, the Promised Fee
Shares included in the Promised Fee Shares Accounts of the Outside
Directors pursuant to the resolutions adopted by the Board on January
30, 1996 with respect to the elimination of retirement payments to
Outside Directors shall be payable solely in cash in accordance with
the provisions of ARTICLE VI hereof. The payment of such Promised Fee
Shares shall be deferred until the Outside Director ceases to be a
member of the Board (in accordance with Rule 16a-1(c)(3)). Payment
shall be made at that time only to those Outside Directors who have
served five or more years as a Board member, subject to the discretion
of the Board.
(b) Eligibility and Election
------------------------
Any Outside Director may elect to defer receipt of all or any portion
of the remainder of the 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 such Fees to be
deferred, (ii) the "Deferral Period" (a minimum of one "Election
Term"), (iii) the choice of deferral in cash or Promised Fee Shares,
pursuant to ARTICLE VI 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.
<PAGE>
(c) 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 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.
(d) 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.
Each Outside Director that does not provide notice to the
Secretary of a Deferral Election in accordance with the preceding
sentence will be deemed to have elected to defer receipt of all
Fees (other than Fees automatically deferred) in the form of
Promised Fee Shares. The Deferral Period for such deemed
election shall be the period beginning on the date an Outside
Director is elected to the Board and ending on the date on which
such Outside Director ceases to be a member of the Board.
(e) 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 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.
(f) 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.
(g) 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,
<PAGE>
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.
(h) Conversion of Pre-Amendment Elections
-------------------------------------
Ongoing elections under the Plan prior to amendment shall continue
under the Plan as amended, except to the extent the Outside Director
elects within 30 days after the effective date of the amendment to the
Plan to change such an election by written notice to the Secretary,
which election shall be effective with respect to all Fees payable
following the date such election is made.
ARTICLE IV. Dividends, Distributions and Adjustments
----------------------------------------
Whenever a cash dividend or any other distribution is paid with respect to
Shares, the Promised Fee Shares Account of each Outside Director shall be
credited with an additional number of Promised Fee Shares, 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 (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 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 Fee Shares shall be fully adjusted upon the occurrence of
any stock split, stock dividend, 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 V. Conversion of REAP and DCP Shares Account Balances; Conversion of
-----------------------------------------------------------------
Promised Award Share 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 Shares ("Promised Award Shares") credited to the Outside
Director's Promised Award Shares Account.
The number of Promised Award Shares in the Promised Award Shares Account of an
Outside Director as of the effective date of the amendment under the Plan prior
to amendment as of such date, shall be converted under the Plan to an equal
number of Promised Fee Shares credited to the Outside Director's Promised Fee
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 23, 1993.
ARTICLE VI. Delivery
--------
Delivery of amounts from the Cash Account and Shares from the 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 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 of (ii) embezzlement,
misappropriation or conversion of assets or opportunities of IBM or any direct
or indirect majority-owned subsidiary of IBM, Promised Award Shares converted to
Promised Fee Shares and credited to such Outside Director's Promised Fee Shares
Account in accordance with ARTICLE V (as such Shares may have been increased as
<PAGE>
a result of any dividend, distribution or adjustment in accordance with ARTICLE
IV) shall be forfeited.
In the event of an Outside Director's death, such Outside Director's estates 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 Fee Shares credited to his or her 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 of 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 VII. Source of Shares
----------------
45,000 Shares as of July 27, 1993, plus an additional 25,000 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).
ARTICLE VIII. 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 VI, no
director shall have any right to transfer or assign any Shares, or any right to
receive any Share, credited to him under this Plan. Any purported assignment
shall be null and void.
ARTICLE IX. 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 X. Effective Date
--------------
The Plan became effective on July 27, 1993. The amendment of the Plan providing
for the payment of one half of the Fees payable to each Outside Director in the
form of Promised Fee Shares, as provided in Article III(a), shall apply
commencing with the July 1995 Fee payment date. The amendment of the other
provisions of the Plan shall become effective when the IBM Non-Employee
Directors Stock Option Plan is authorized by the stockholders of IBM and shall
apply to the next succeeding quarterly Fee payment.
ARTICLE XI. 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.
EXHIBIT XI
AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------
Agreement made and entered into effective as of the first day of
January, 1996 by and between International Business Machines Corporation (the
"Company"), a New York Corporation, and Louis V. Gerstner, Jr. (the
"Executive").
Pursuant to Section 17 of the Employment Agreement dated as of March
26, 1993 between the Company and the Executive, said Agreement is amended as
follows:
1. Section 4 is amended to provide that Executive's annual Base
Salary shall be $1,500,000.
2. Section 5 is amended to provide that Executive's annual incentive
award target opportunity shall be at least $2,000,000.
3. Section 6 is amended to provide that Executive's long-term
performance incentive award target opportunity shall be at least $1,500,000.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
INTERNATIONAL BUSINESS MACHINES CORPORATION
/s/ Thomas J. Bouchard
By:
--------------------------
J. Thomas Bouchard
Senior Vice President,
Human Resources
Agreed to and accepted by:
/s/ Louis V. Gerstner, Jr.
----------------------------
Louis V. Gerstner, Jr.
EXHIBIT VII
Report of Management 34
Report of Independent Accountants 35
Management Discussion 36
Consolidated Financial Statements 50
Operations
Financial Position
Cash Flows
Stockholders' Equity
Notes To Consolidated Financial Statements 54
Significant Accounting Policies A
Accounting Changes B
Risks and Uncertainties C
Inventories D
Plant, Rental Machines and Other Property E
Investments and Sundry Assets F
Debt G
Taxes H
Advertising 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
Stock Repurchase Programs S
Retirement Plans T
Nonpension Postretirement Benefits U
Lines of Credit V
Sale and Securitization of Receivables W
Financial Instruments X
Segment Information Y
Subsequent Events Z
Geographic Areas AA
Five-Year Comparison of Selected Financial Data 79
Selected Quarterly Data 79
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. Its accompanying report is based on an examination
conducted in accordance with generally accepted auditing standards, including a
review of the internal control structure and tests of accounting procedures and
records.
The Audit Committee of the Board of Directors is composed solely of outside
directors, and is responsible for recommending to the Board the independent
accounting firm to be retained for the coming year, subject to stockholder
approval. The Audit Committee meets periodically and privately with the
independent accountants, with our internal auditors, as well as with IBM
management, to review accounting, auditing, internal control structure and
financial reporting matters.
/s/ Louis V. Gerstner, Jr. /s/ G. Richard Thoman
Louis V. Gerstner, Jr. G. Richard Thoman
Chairman of the Board and Senior Vice President and
Chief Executive Officer 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 50 through 78, present fairly, in all material respects, the financial
position of International Business Machines Corporation and its subsidiaries at
December 31, 1995 and 1994, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1995, 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 55 and 56, the company
changed its method of accounting for postemployment benefits in 1993. We concur
with this change.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
January 19, 1996
35
<PAGE>
...........
MANAGEMENT DISCUSSION
International Business machines Corporation and Subsidiary Companies
Overview
IBM made significant progress during 1995 in implementing its fundamental
strategies of transforming its traditional businesses to position them for the
emerging network-centric computing market and rapidly expanding its newer,
high-growth businesses. As a result, the company reported record revenues, with
the best rate of revenue growth since 1984.
Overall, as advances in network technology continue to create new and powerful
applications for our customers, the demand for computing power remains high. In
1995, shipments of System/390* servers delivered 59 percent more power than in
the prior year. Revenues from servers grew 9.0 percent, reflecting the delivery
of significant price/performance improvements to our customers.
Revenue growth continued to be strong for Original Equipment Manufacturer (OEM)
merchant-market semiconductors and low-end storage files. Personal systems
clients continued to show growth, in both personal computers and RISC
System/6000* products. While revenue from storage products continued to decline,
shipments of the RAMAC* II product in the fourth quarter of 1995 were strong.
The company's services offerings continued to show strong growth and are now the
second largest source of revenue, behind hardware sales. The services gross
profit margin remains lower than the company's hardware offerings.
The company's software revenues grew primarily as a result of the acquisition of
Lotus Development Corporation (Lotus), which is discussed further on pages 47
and 48. On July 5, 1995, the company acquired all outstanding shares of Lotus
for approximately $3.2 billion ($2.9 billion in net cash). The company considers
Lotus to be an applications-enabling software company engaged in high-growth
segments of the software market. It is believed that the acquisition of Lotus
provides the company with an opportunity to successfully advance workgroup
technology from local area network environments to enterprisewide environments.
While much progress has been made, IBM must continue its pace of change as it
focuses increasingly on revenue growth, introduction of new offerings in the
network-centric computing market, and aligning its cost and expense structure in
strategic solutions areas.
Results of Operations
(DOLLARS IN MILLIONS) 1995 1994 1993
Revenue $ 71,940 $ 64,052 $ 62,716
Cost 41,573 38,768 38,568
--------- --------- ---------
Gross profit 30,367 25,284 24,148
Total expense without restructuring charges 22,554 20,129 24,000
Restructuring charges - - 8,945
--------- --------- ---------
Net earnings (loss) before income taxes $ 7,813 $ 5,155 $ (8,797)
========= ========= =========
Net earnings (loss) $ 4,178 $ 3,021 $ (8,101)
========= ========= =========
Gross profit margin 42.2% 39.5% 38.5%
36
<PAGE>
...........
MANAGEMENT DISCUSSION
International Business machines Corporation and Subsidiary Companies
The following table summarizes the year-to-year percentage change in the
company's revenue by geographic area:
Percentage Change
1995-94 1994-93*
Total IBM 12.3% 6.0%
North America 11.1 4.1
United States 11.1 3.0
Canada 11.7 15.8
Europe/Middle East/Africa 9.6 5.8
Asia Pacific 22.2 13.4
Latin America 6.3 (.7)
*1993 revenue was reduced for revenue associated with the Federal Systems
Company, which was sold in 1994.
The overall gross profit margin increased to 42.2 percent, a 2.7 point
improvement over 1994, following a 1.0 point improvement in 1994 over 1993. The
increases are primarily driven by improved margins in hardware sales resulting
from cost improvements across most major product lines. The gross profit margins
also continue to be affected by hardware pricing pressures and the company's
shift to services revenue, which has a lower gross profit margin than the
company's hardware and software offerings.
The company reported net earnings of $4,178 million ($7.23 per common share),
$3,021 million ($5.02 per common share) and a net loss of $8,101 million ($14.22
per common share) for 1995, 1994 and 1993, respectively.
The following table is provided for informational purposes only, to exclude the
effects of certain items on the company's net earnings.
(DOLLARS IN MILLIONS) 1995 1994 1993
Net earnings after tax as reported $ 4,178 $ 3,021 $ (8,101)
Lotus purchased in-process
research and development (pages 47 and 48) 1,840 - -
1995 4th Quarter special items (pages 42 and 43) 431 - -
Effects of Federal Systems Company (FSC) sale
(page 48) (115) (248) (105)
Software amortization change (page 40) - 192 -
Restructuring charge (page 62) - - 7,996
SFAS 112 (page 56) - - 114
-------- --------- ----------
Adjusted net earnings $ 6,334 $ 2,965 $ (96)
======== ========= ==========
Adjusted earnings after tax per common share $ 11.02 $4.92 $(.25)
37
<PAGE>
...........
MANAGEMENT DISCUSSION
International Business machines Corporation and Subsidiary Companies
Hardware Sales
(DOLLARS IN MILLIONS) 1995 1994 1993
Total revenue $ 35,600 $ 32,344 $ 30,591
Total cost 21,862 21,300 20,696
--------- --------- ---------
Gross profit $ 13,738 $ 11,044 $ 9,895
========= ========= =========
Gross profit margin 38.6% 34.1% 32.3%
Worldwide revenue from hardware sales increased 10.1 percent from 1994,
following an increase of 5.7 percent in 1994 from 1993. Worldwide gross profit
dollars from hardware sales increased 24.4 percent from 1994, following an
increase of 11.6 percent in 1994 from 1993.
Revenue from servers increased 9.0 percent from 1994, following a 2.7 percent
decrease versus 1993. The 1995 increase reflected higher revenue from AS/400*,
RISC System/6000 and POWERparallel* servers, as well as a slight increase in
System/390 server revenue. System/390 shipments measured in MIPS increased 59
percent and 41 percent in 1995 and 1994, respectively, while POWERparallel
shipments more than doubled in 1995 over 1994. Although System/390 revenue grew
in 1995, it continues to experience competitive pricing pressures. The 1994
decrease was primarily due to declines in System/390 revenue, resulting from
competitive pricing pressures, partially offset by AS/400 server revenue growth
in 1994 over 1993, as the new advanced series of servers showed strong growth.
Personal system clients revenue grew 15.1 percent from 1994, following a 17.7
percent increase in 1994 from 1993. These increases resulted from higher revenue
from personal computers and strong growth from RISC System/6000 clients.
Storage products revenue decreased 6.9 percent in 1995 from 1994, following a
decrease of 26.1 percent in 1994 from 1993. These declines were a result of
continuing price competition across most storage products. Although revenue
decreased in 1995 from 1994, fourth quarter shipments of the RAMAC II product
were strong.
OEM hardware revenue grew 38.2 percent in 1995 versus 1994, following a 151.2
percent increase in 1994 over 1993. These increases were 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 in
note Y on pages 75 and 76. The product trends demonstrated in this discussion
and in that disclosure are indicative, in all material respects, of hardware
sales activity.
The increase in the 1995 hardware sales gross profit margin was driven by
System/390 servers due to the increased shipment of the new Complementary Metal
Oxide Semiconductor (CMOS) servers. In addition, personal computer clients, RISC
System/6000 servers and OEM products showed improved gross profit margins in
1995 versus 1994. The increase in hardware sales gross profit margin in 1994
versus 1993 was primarily driven by cost improvements in System/390 servers,
offset by lower personal computer client margins. Although the overall hardware
sales margin has been increasing, it continues to be adversely impacted by
pricing pressures on System/390 servers, personal computer clients and storage
products.
38
<PAGE>
...........
MANAGEMENT DISCUSSION
International Business machines Corporation and Subsidiary Companies
Services
(DOLLARS IN MILLIONS) 1995 1994 1993
Services $ 12,714 $ 9,715 $ 7,648
Federal Systems Company - - 2,063
-------- --------- ---------
Services revenue excluding maintenance 12,714 9,715 9,711
Cost 10,042 7,769 8,279
-------- --------- ---------
Gross profit $ 2,672 $ 1,946 $ 1,432
======== ========= =========
Gross profit margin 21.0% 20.0% 14.7%
Maintenance revenue $ 7,409 $ 7,222 $ 7,295
Cost 3,651 3,635 3,545
-------- --------- ---------
Gross profit $ 3,758 $ 3,587 $ 3,750
======== ========= =========
Gross profit margin 50.7% 49.7% 51.4%
Total services revenue $ 20,123 $ 16,937 $ 17,006
Cost 13,693 11,404 11,824
-------- --------- ---------
Gross profit $ 6,430 $ 5,533 $ 5,182
======== ========= =========
Gross profit margin 32.0% 32.7% 30.5%
Services revenue, excluding maintenance, increased 30.9 percent in 1995 from
1994. The 1994 results, on an as-reported basis, did not include operational
results from FSC, which were included in 1993 results. When adjusted for the
effects of the FSC sale, services revenue increased 27.0 percent in 1994 over
1993. These increases were primarily driven by strong growth in outsourcing of
systems and networks, consulting and systems integration activity.
Services gross profit dollars, excluding maintenance, increased 37.4 percent in
1995 versus 1994, following an increase of 35.9 percent in 1994 over 1993.
Adjusted for the FSC sale, 1994 gross profit dollars increased 54.0 percent over
1993. The 1993 gross profit dollars were impacted by adjustments required on
certain older contracts that were not expected to be profitable. The 1993
services gross profit margin adjusted for the FSC activity, excluding
maintenance, was 16.5 percent.
Maintenance revenue increased 2.6 percent in 1995 from 1994, following a
decrease of 1.0 percent in 1994 from 1993. Gross profit dollars increased 4.7
percent year over year, following a decrease of 4.4 percent in 1994 from 1993.
Maintenance revenue and gross profit dollar improvements were the results of
currency benefits in 1995. Maintenance revenue and gross profit margins continue
to be adversely affected by the competitive environment and resulting pricing
pressures on maintenance offerings, as well as, in 1995, a mix toward products
having lower profit margins. This trend is expected to continue.
39
<PAGE>
...........
MANAGEMENT DISCUSSION
International Business machines Corporation and Subsidiary Companies
Software
(DOLLARS IN MILLIONS) 1995 1994 1993
Total revenue $ 12,657 $ 11,346 $ 10,953
Total cost 4,428 4,680 4,310
-------- --------- ---------
Gross profit $ 8,229 $ 6,666 $ 6,643
======== ========= =========
Gross profit margin 65.0% 58.8% 60.7%
Software revenue increased 11.6 percent in 1995 from 1994, following an increase
of 3.6 percent in 1994 from 1993. The increase in 1995 was primarily due to
revenue generated by products offered by Lotus, which was purchased on July 5,
1995, and whose results are included in the company's 1995 results. The increase
in 1994 was primarily due to higher one-time charge revenue associated with RISC
System/6000 placements.
Software gross profit dollars increased $1,563 million (23.4%) in 1995 from
1994, following an increase of $23 million (.3%) in 1994 from 1993. As the
company continues its efforts to deliver software solutions to satisfy its
customers needs, a number of changes have evolved which have the effect of
reducing cost levels.
In the normal course of business, the amounts spent for software products are
either charged to research, development and engineering expense or capitalized;
then subsequently amortized as cost over the product's useful life. As the
company continues to improve the pace at which new products are introduced in
the marketplace, an increased percentage of the spending is charged to expense,
resulting in a growth of research, development and engineering expense dollars
from year to year. Because a lesser percentage of the spending is capitalized,
the result is lower software capital additions from year to year ($.8 billion in
1995 and $1.4 billion in 1994). Also, in reaction to changes in the marketplace,
in 1994 the company reduced the amortization periods for its software products
to a maximum of four years. The combined effects of these changes have resulted
in lower software carrying values in the company's Consolidated Statement of
Financial Position ($2,419 million, $2,963 million and $3,703 million at
December 31, 1995, 1994 and 1993, respectively). In addition to reducing the
amount of costs to be amortized in future periods, these lower balances will
lessen the company's risk of impairment and write-offs of its software products
due to changes in the marketplace. The amounts written off were $344 million in
1995, $491 million in 1994 and $327 million in 1993.
While these changes have contributed to the growth in software gross profit in
1995, they were partially offset by higher vendor royalty costs as the company
continues to seek solutions for its customers from many sources.
The reduction in amortization periods, which was made in 1994, resulted in a
charge that year to software cost of $296 million. Excluding the effect of this
charge, gross profit dollars would have been $6,962 million and the gross profit
margin would have been 61.4 percent in 1994.
Rentals and Financing
(DOLLARS IN MILLIONS) 1995 1994 1993
Total revenue $ 3,560 $ 3,425 $ 4,166
Total cost 1,590 1,384 1,738
-------- -------- --------
Gross profit $ 1,970 $ 2,041 $ 2,428
======== ======== ========
Gross profit margin 55.4% 59.6% 58.3%
40
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MANAGEMENT DISCUSSION
International Business machines Corporation and Subsidiary Companies
Rentals and financing revenue increased 3.9 percent from 1994, following a
decrease of 17.8 percent in 1994 from 1993. The growth in 1995 revenue was a
result of increases in new financing originations versus 1994. However, revenue
was down from 1993 as older leases (1993 and prior originations) continued to
expire. Rentals and financing gross profit dollars decreased 3.4 percent from
1994, following a decline of 15.9 percent in 1994 from 1993. These decreases
were a reflection of both declining volumes and rental prices on high-end
products over the past few years, as well as a changing country mix.
Operating Expenses
(DOLLARS IN MILLIONS) 1995 1994 1993
Selling, general and administrative $ 16,766 $ 15,916 $ 18,282
Percentage of revenue 23.3% 24.8% 29.2%
Research, development and engineering $ 6,010 $ 4,363 $ 5,558
Less: Lotus purchased in-process
research and development 1,840 - -
--------- --------- ---------
Adjusted research, development and
engineering $ 4,170 $ 4,363 $ 5,558
========= ========= =========
Percentage of revenue 5.8% 6.8% 8.9%
Selling, general and administrative (SG&A) expense increased 5.3 percent from
1994, which followed a decrease of 12.9 percent in 1994 from 1993. The 1995
results included two special items: a $626 million charge for work force
separations and asset reductions and a one-time gain of $175 million due to the
settlement of certain contractual obligations resulting from the 1994 sale of
FSC. The 1994 results included the before-tax gain from the FSC sale ($382
million). Excluding these items, 1995 SG&A expense would have increased .1
percent, and the decrease in 1994 would have been 10.9 percent. In addition, the
1995 results included six months of amortization of goodwill and operating
expenses resulting from the acquisition of Lotus, which amounted to
approximately $471 million. Without the two special items and the Lotus
expenses, 1995 SG&A expense would have decreased 2.8 percent from 1994. The
company continues to focus on productivity, reengineering, expense controls and
prioritization of spending in order to have competitive expense to revenue
levels.
Research, development and engineering expense increased 37.7 percent in 1995,
following a decrease of 21.5 percent in 1994 from 1993. The increase was a
result of a $1,840 million charge for purchased in-process research and
development in connection with the Lotus acquisition. Excluding this item,
research, development and engineering expense would have decreased 4.4 percent
in 1995. Additionally, changes in the software development process coupled with
an increased pace to market continued to reduce the software capitalization
rate, which increased charges to research, development and engineering expense
from period to period. The reductions in both years reflected the company's
continued focus on productivity and expense controls, which resulted in
elimination of redundant efforts and reprioritization of development activities
to such areas as network-centric computing, microprocessors, RISC technology,
networking, personal computers and desktop software.
41
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MANAGEMENT DISCUSSION
International Business machines Corporation and Subsidiary Companies
Other Income/Interest Expense
(DOLLARS IN MILLIONS) 1995 1994 1993
Other income, principally interest $ 947 $ 1,377 $ 1,113
Interest expense 725 1,227 1,273
Other income, principally interest, was $.9 billion in 1995, a decrease of 31.3
percent from 1994, following an increase of 23.7 percent in 1994 over 1993. The
1995 decrease reflected the continuing impact of the switch to the Real currency
by Brazil effective July 1994 and generally lower levels of cash balances versus
1994. The 1994 increase reflected higher levels of available cash and higher
interest rates versus 1993.
In July 1994, the Brazilian government converted to a new currency, the Real.
The new currency was part of the government's economic plan to reduce inflation
and stabilize the economy. This change had 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 and all of 1995 when compared to prior periods.
Provision for Income Taxes
The provision for income taxes was a charge of $3,635 million in 1995, $2,134
million in 1994 and a benefit of $810 million in 1993. The 1995 provision was
based on earnings before income taxes of $7,813 million, resulting in an
effective tax rate of 47 percent for 1995, as compared to the 1994 provision,
which was based on earnings of $5,155 million, resulting in an effective tax
rate of 41 percent. The higher rate in 1995 resulted from expensing the
purchased in-process research and development as part of the acquisition of
Lotus with no corresponding tax benefit. Without the effect of this item, the
tax rate would have been 38 percent. The effective tax rate of (9) percent in
1993 was principally due to limited tax benefits on restructuring charges, along
with a high effective tax rate on earnings in certain non-U.S. operations.
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 $11.0 billion as compared to
approximately $14.0 billion in 1994 and $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 two years' U.S. taxable income
was considered. This was approximately $4.8 billion (estimated income) in 1995
and a $549 million loss in 1994. In addition, consideration was given to the
impact of prior years' restructuring actions on the company's future taxable
income and to tax planning strategies related to research and development costs.
Fourth Quarter
For the quarter ended December 31, 1995, the company had revenue of $21.9
billion, a 10.2 percent increase over the same period of 1994. Net earnings in
the fourth quarter were $1,711 million ($3.09 per common share), compared to net
earnings of $1,230 million ($2.06 per common share) in the fourth quarter of
1994. In the fourth quarter of 1995, the company recorded a pretax charge of
$663 million to cover work force separation costs and asset reductions ($626
million) and a software write-down ($37 million). These charges were partially
offset by a one-time gain of $175 million from the settlement of certain
contractual obligations resulting
42
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MANAGEMENT DISCUSSION
International Business machines Corporation and Subsidiary Companies
from the 1994 sale of FSC. The company's fourth-quarter 1995 net earnings would
have been approximately $2.0 billion, or $3.66 per common share, before these
special items.
Revenue increased in all but one geographic area in the fourth quarter. United
States revenue was $7.8 billion, an increase of 12.0 percent compared to the
fourth quarter a year ago. Revenue from
Europe/Middle East/Africa rose 7.1 percent year over year to $8.1 billion, Asia
Pacific revenue grew 19.3 percent to $4.1 billion, and revenue from Canada rose
2.6 percent to $.8 billion. Latin America revenue declined 3.3 percent from the
same period of 1994 to $1.1 billion.
Currency had an approximately 2 percent favorable effect on revenue in the
fourth quarter.
Hardware sales revenue increased 7.9 percent to $11.5 billion, compared to the
same period of last year. Personal computer, RISC System/6000 and System/390
revenue increased. AS/400 revenue declined compared to the fourth quarter of
last year as a result of ongoing product transitions. Storage product revenue
also fell due to year-over-year price reductions.
Services revenue grew 24.8 percent over the previous year to $4.1 billion,
reflecting continued strength across the company's services categories,
including outsourcing of systems and networks, consulting, systems integration,
networking and availability services, and education.
Software revenue was $3.6 billion, an increase of 9.0 percent compared to the
fourth quarter of 1994. Maintenance revenue increased .9 percent year over year
to $1.8 billion, while revenue from rentals and financing revenue grew 6.3
percent to $916 million.
The total gross profit margin was 41.7 percent in the fourth quarter, compared
to 40.6 percent in the same period of 1994.
Total expenses, before the special items, rose slightly compared to last year's
fourth quarter, primarily due to goodwill amortization and operating expenses
related to Lotus, which was acquired on July 5, 1995.
Financial Condition
During 1995, the company took a number of actions that are reflected in the
Consolidated Statement of Financial Position at December 31, 1995, including
expenditures of $5.7 billion for the repurchase of common and preferred capital
stock, $2.9 billion net cash payments for the acquisition of Lotus, and $2.1
billion in payments related to restructuring charges incurred in prior periods.
Working Capital
At December 31
(DOLLARS IN MILLIONS) 1995 1994
Current assets $ 40,691 $ 41,338
Current liabilities 31,648 29,226
--------- ---------
Working capital $ 9,043 $ 12,112
========= =========
Current ratio 1.29:1 1.41:1
Current assets declined $.6 billion from year-end 1994, with a reduction in
total cash, cash equivalents and marketable securities of $2.8 billion, offset
by increases in accounts receivable of $1.9 billion and prepaid expenses of $.3
billion. The decrease in total cash, cash equivalents and marketable securities
43
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MANAGEMENT DISCUSSION
International Business machines Corporation and Subsidiary Companies
resulted primarily from the stock repurchases, the acquisition of Lotus and
restructuring payments, offset by cash generated from operations. The increase
in accounts receivable reflected strong year-end business volumes.
Total current liabilities increased $2.4 billion from December 31, 1994, with
increases of $.9 billion in taxes payable and $2.0 billion in short-term debt,
offset by a net decrease of $.5 billion in other current liabilities (a decrease
in other accrued expenses and liabilities, and increases in accounts payable,
and compensation and benefits). The increase in taxes payable is due to
improvement in the company's operating results in certain geographies.
Short-term debt increased to support the growth in customer financing assets.
The decline in other accrued expenses and liabilities resulted from lower
restructuring accrual balances due to implementation of the company's
restructuring programs.
Investments
The company's capital expenditures for plant, rental machines and other property
were $4.7 billion for the year ended December 31, 1995, an increase of $1.6
billion from 1994. The increase reflects the company's continuing investment in
high-growth advanced technology areas such as microelectronics and in the
managing of customers' information technology as part of the company's rapidly
growing services business.
In addition to software development expense included in research, development
and engineering expense, the company capitalized $.8 billion of software costs
during 1995, versus the $1.4 billion capitalized in 1994. Amortization of
capitalized software costs amounted to $1.6 billion for 1995, a decrease of $.5
billion from 1994 (which included $.3 billion in accelerated amortization
resulting from a software amortization change implemented in the first quarter
of 1994).
Investments and sundry assets were $20.6 billion at December 31, 1995, an
increase of $.5 billion from December 31, 1994, primarily the result of
increases in prepaid pension assets and the goodwill associated with the
acquisition of Lotus, offset by a decline in deferred tax assets.
Debt and Equity
(DOLLARS IN MILLIONS) 1995 1994
Short-term debt $ 11,569 $ 9,570
Long-term debt 10,060 12,548
--------- --------
Total debt $ 21,629 $ 22,118
========= ========
Stockholders' equity $ 22,423 $ 23,413
========= ========
Total debt/total capitalization 49.1% 48.6%
The ratio of total debt to total capitalization increased in 1995 primarily due
to the retirement of repurchased capital stock during the year; total debt
declined by $.5 billion due to the retirement of $1.0 billion of "core" debt,
offset by an increase of $.5 billion in debt to maintain a constant leverage in
customer financing.
Other non-current liabilities of $14.4 billion increased $.3 billion from
year-end 1994, principally due to increases in non-current postretirement
benefit liabilities and deferred income, offset by declines in restructuring
accrual balances.
44
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MANAGEMENT DISCUSSION
International Business machines Corporation and Subsidiary Companies
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 that 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 of 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 M on pages 62 and 63.
Stockholders' equity declined $1.0 billion from December 31, 1994, primarily as
a result of common and preferred stock repurchases, partially offset by the
company's net earnings from operating results. The repurchased shares were
retired and restored to the status of authorized but unissued.
Currency Rate Fluctuations
Approximately 90 percent of the company's non-U.S. business is conducted in
local currency environments. Currency rate variations had favorable effects on
revenue results of approximately 4 percent in 1995, 2 percent in 1994 and an
unfavorable impact of 3 percent in 1993. As worldwide currencies strengthen
versus the U.S. dollar, 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, 1995, the cumulative translation
adjustment was $3.0 billion, an increase of $.4 billion over 1994.
In high-inflation environments, like 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 uses a variety of financial hedging instruments to minimize currency
risks related to customer financing transactions and the repatriation of
dividends and royalties. Further discussion on currency and hedging appears in
note X on pages 72 through 75.
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, 1995, $8.9 billion was unused and still
available. Further discussion appears in note V on page 72.
At year-end 1995, the company had a net balance of $1.2 billion in assets under
management from the securitization of lease and trade receivables. This amount
is $.6 billion lower than the 1994 year-end balance of $1.8 billion. Further
discussion appears in note W on page 72.
In April 1995, Duff & Phelps upgraded its credit ratings for IBM and its rated
subsidiaries' senior long-term debt to "A+" from "A" and its preferred stock
rating to "A" from "A-".
45
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MANAGEMENT DISCUSSION
International Business machines Corporation and Subsidiary Companies
In August 1995, Moody's Investors Service upgraded its credit ratings on the
senior long-term debt of IBM and its rated subsidiaries to "A-1" from "A-3" and
on IBM's preferred stock to "A-1" from "Baa-1".
Fitch Investors Service, in December 1995, upgraded its credit ratings for IBM
and its rated subsidiaries' senior long-term debt to "A+" from "A", short-term
debt to "F-1+" from "F-1", and its preferred stock rating to "A" from "A-".
The following table summarizes the company's cash flows from operating,
investing and financing activities as prescribed by Generally Accepted
Accounting Principles (GAAP), and reflected in the Consolidated Statement of
Cash Flows on page 52:
(DOLLARS IN MILLIONS) 1995 1994 1993
Net cash provided from (used in):
Operating activities $ 10,708 $ 11,793 $ 8,327
Investing activities (5,052) (3,426) (4,202)
Financing activities (6,384) (6,412) (1,914)
Effect of exchange rate changes
on cash and cash equivalents 65 106 (796)
--------- --------- ---------
Net change in cash and cash equivalents $ (663) $ 2,061 $ 1,415
========= ========= ========
Net cash provided from operating activities declined $1.1 billion from the 1994
period reflecting a decrease in cash flows due to net changes in operating
assets and liabilities (primarily customer financing receivables), offset by the
improvement in net earnings.
The $1.6 billion increase in funds used in investing activities from the 1994
period is attributable to the company's acquisition of Lotus in July 1995,
partially offset by net cash inflows from the sale of marketable securities
during 1995. In addition, the 1994 period reflects $1.5 billion in proceeds from
the sale of FSC.
Net cash used in financing activities for 1995 resulted principally from
implementation of the company's preferred and common stock repurchase programs,
offset by higher levels of short-term borrowings associated with customer
financing.
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 sectors. 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, but is supplementary in nature. Under this model,
"core" cash flow from operations was approximately $7.1 billion in 1995,
excluding the Lotus acquisition. 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.
46
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MANAGEMENT DISCUSSION
International Business machines Corporation and Subsidiary Companies
FINANCING RISKS
Customer financing is an integral part of the company's total worldwide
offerings. Financial results of customer financing can be found in note O on
pages 63 through 66. 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 earn a profit. In 1995 and 1994, 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, 1994 and 1995. The following table excludes
approximately $50 million of estimated residual value associated with
non-information technology equipment.
Total Run Out of 1995 Residual Value Balance
--------------------------------------------------------
(Dollars in millions) 1993 1994 1995 1996 1997 1998 1999 and
beyond
Sales-type leases $ 760 $ 535 $ 470 $ 165 $ 130 $ 135 $ 40
Operating leases 250 140 295 105 80 90 20
------- ------- ------ ------ ------ ------ -------
Total residual value $ 1,010 $ 675 $ 765 $ 270 $ 210 $ 225 $ 60
======= ======= ====== ====== ====== ====== =======
Lotus Development Corporation
- -----------------------------
On July 5, 1995, the company acquired all outstanding shares of Lotus for
approximately $3.2 billion ($2.9 billion in net cash).
The company engaged a nationally recognized, independent appraisal firm to
express an opinion on the fair market value of the assets acquired to serve as a
basis for allocation of the purchase price to the various classes of assets. The
appraisal included both tangible and identifiable intangible assets, as well as
software technology. The company allocated the total purchase price as follows:
(DOLLARS IN MILLIONS)
Tangible net assets $ 325
Identifiable intangible assets 542
Current software products 290
Purchased in-process research and development 1,840
Goodwill 540
Deferred tax liabilities related to identifiable intangible assets (291)
--------
Total $ 3,246
========
47
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MANAGEMENT DISCUSSION
International Business machines Corporation and Subsidiary Companies
The tangible net assets consisted primarily of cash, accounts receivable, land,
buildings, leasehold improvements and other personal property. The identifiable
intangible assets consisted of trademarks ($369 million) and assembled work
force, employee agreements, and leasehold interests totaling $173 million. The
identifiable intangible assets and goodwill will be amortized on a straight-line
basis over a five-year period.
The software technology valuation was accomplished through the application of an
income approach. Projected debt-free income, revenue net of provision for
operating expenses, income taxes and returns on requisite assets were discounted
to a present value. This approach was used for each of the Lotus product lines.
Software technology was divided into two categories: current software products
and in-process research and development.
Current software products included: "Current products" representing products
currently in the marketplace as of the acquisition date and "In
development-complete" for products still in the development stage and
technologically feasible.
The fair market value of the purchased current software products was determined
to be $290 million. This amount was recorded as an asset and is being amortized
on a straight-line basis over two years.
Purchased in-process research and development included the value of software
products still in the development stage and not considered to have reached
technological feasibility stage.
As a result of the valuation, the fair market value of the purchased in-process
research and development was determined to be $1,840 million. In accordance with
applicable accounting rules, this amount was expensed upon acquisition in the
third quarter of 1995.
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 reflected the impact of
certain contractual, employee postemployment, and other obligations, which
included amounts for the Advanced Automation System contract for the Federal
Aviation Administration. In the fourth quarter of 1995, the company recorded a
before-tax gain of $175 million due to the conclusion of those contractual
obligations between the company and Loral Corporation. Additionally, as a result
of this sale, approximately 10,000 people transferred to Loral, retired, or are
on a preretirement leave from the company. The company has concluded all its
contractual obligations related to this sale.
In 1993, FSC had, on a stand-alone basis, net earnings of $58 million on
revenues of $2.3 billion.
48
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MANAGEMENT DISCUSSION
International Business Machines Corporation and Subsidiary Companies
Employees
Percentage Changes
1995 1994 1993 1995-94 1994-93
IBM/wholly owned subsidiaries 225,347 219,839 256,207 2.5% (14.2)%
Less than-wholly owned
subsidiaries 26,868 23,200 10,989 15.8 111.1
Complementary 38,000 35,000 35,000 8.6 0.0
As of December 31, 1995, regular employees increased 5,508 from 1994 mainly due
to hiring in high-growth areas of the business and emerging markets, and to
acquisition of business entities, particularly Lotus. Some of these entities,
while less than wholly-owned, are consolidated into the company's financial
statements. The increase of employees in the less than wholly owned subsidiaries
category in 1995 is due primarily to MiCRUS, a newly formed U.S. subsidiary with
763 employees, and Technology Service Solutions, an existing U.S. subsidiary
with 7,717 employees, an increase of 2,797 employees over last year.
The company's complementary work force comprises equivalent full-time employees
hired under temporary, part-time and limited-term employment arrangements to
meet specific business needs in a flexible and cost-effective manner.
Looking Forward
The record revenue the company reported in 1995 is one indication that its
fundamental strategies are working. However, there are still many challenges
ahead. To remain the leader in translating advanced information technology into
value for customers, IBM must be at the forefront of change in the emerging
model for network-centric computing. This means constantly improving the
company's mix of offerings, continuing the focus on productivity and efficiency
improvements, and concentrating on the emerging growth areas around the world.
It means identifying solutions and quickly introducing them to the company's
portfolio; and sometimes adding business partners, as with the acquisition of
Lotus and the announced merger with Tivoli Systems - both leading software
companies, with products and technology that complement and strengthen IBM's
offerings. There is much opportunity ahead, and the company is prepared to seize
it.
49
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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 1995 1994 1993
Revenue:
Hardware sales $ 35,600 $ 32,344 $ 30,591
Services 12,714 9,715 9,711
Software 12,657 11,346 10,953
Maintenance 7,409 7,222 7,295
Rentals and financing O 3,560 3,425 4,166
- -------------------------------------------------------------------------------
Total revenue 71,940 64,052 62,716
- -------------------------------------------------------------------------------
Cost:
Hardware sales 21,862 21,300 20,696
Services 10,042 7,769 8,279
Software 4,428 4,680 4,310
Maintenance 3,651 3,635 3,545
Rentals and financing 1,590 1,384 1,738
- -------------------------------------------------------------------------------
Total cost 41,573 38,768 38,568
- -------------------------------------------------------------------------------
Gross profit 30,367 25,284 24,148
- -------------------------------------------------------------------------------
Operating expenses:
Selling, general and administrative I 16,766 15,916 18,282
Research, development and engineering J 6,010 4,363 5,558
Restructuring charges K - - 8,945
- -------------------------------------------------------------------------------
Total operating expenses 22,776 20,279 32,785
- -------------------------------------------------------------------------------
Operating income (loss) 7,591 5,005 (8,637)
Other income, principally interest 947 1,377 1,113
Interest expense L 725 1,227 1,273
- -------------------------------------------------------------------------------
Earnings (loss) before income taxes 7,813 5,155 (8,797)
Provision (benefit) for income taxes H 3,635 2,134 (810)
- -------------------------------------------------------------------------------
Net earnings (loss) before change
in accounting principle 4,178 3,021 (7,987)
Effect of change in accounting principle B - - (114)
- -------------------------------------------------------------------------------
Net earnings (loss) 4,178 3,021 (8,101)
Preferred stock dividends and transaction costs 62 84 47
- -------------------------------------------------------------------------------
Net earnings (loss) applicable
to common shareholders $ 4,116 $ 2,937 $ (8,148)
===============================================================================
Per share of common stock amounts:
Before change in accounting principle $ 7.23 $ 5.02 $ (14.02)
Effect of change in accounting principle B - - (.20)
- -------------------------------------------------------------------------------
Net earnings (loss) applicable
to common shareholders $7.23 $5.02 $ (14.22)
===============================================================================
Average number of common shares outstanding:
1995 - 569,384,029; 1994 - 584,958,699; 1993 - 573,239,240
The notes on pages 54 through 78 are an integral part of this statement.
50
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CONSOLIDATED STATEMENT OF OPERATIONS
International Business machines Corporation and Subsidiary Companies
(DOLLARS IN MILLIONS)
At December 31: Notes 1995 1994
Assets
Current assets:
Cash $ 1,746 $ 1,240
Cash equivalents 5,513 6,682
Marketable securities X 442 2,632
Notes and accounts receivable - trade, 16,450 14,018
net of allowances
Sales-type leases receivable 5,961 6,351
Other accounts receivable 991 1,164
Inventories D 6,323 6,334
Prepaid expenses and other current assets 3,265 2,917
- ----------------------------------------------------------------------------
Total current assets 40,691 41,338
- ----------------------------------------------------------------------------
Plant, rental machines and other property E 43,981 44,820
Less: Accumulated depreciation 27,402 28,156
- ----------------------------------------------------------------------------
Plant, rental machines and other property - net 16,579 16,664
- ----------------------------------------------------------------------------
Software, less accumulated amortization
(1995, $11,276; 1994, $10,793) 2,419 2,963
Investments and sundry assets F 20,603 20,126
- ----------------------------------------------------------------------------
Total assets $ 80,292 $ 81,091
============================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Taxes H $ 2,634 $ 1,771
Short-term debt G 11,569 9,570
Accounts payable 4,511 3,778
Compensation and benefits 2,914 2,702
Deferred income 3,469 3,475
Other accrued expenses and liabilities 6,551 7,930
- ----------------------------------------------------------------------------
Total current liabilities 31,648 29,226
- ----------------------------------------------------------------------------
Long-term debt G 10,060 12,548
Other liabilities M 14,354 14,023
Deferred income taxes H 1,807 1,881
- ----------------------------------------------------------------------------
Total liabilities 57,869 57,678
- ----------------------------------------------------------------------------
Contingencies N
Stockholders' equity:
Preferred stock, par value $.01 per share -
shares authorized: 150,000,000
shares issued: 1995 - 2,610,711;
1994 - 11,145,000 S 253 1,081
Common stock, par value $1.25 per share -
shares authorized: 750,000,000
shares issued: 1995 - 548,199,013;
1994 - 588,180,244 S 7,488 7,342
Retained earnings 11,630 12,352
Translation adjustments 3,036 2,672
Treasury stock, at cost (shares: 1995 - 424,583;
1994 - 469,500) (41) (34)
Net unrealized gain on marketable securities 57 -
- ----------------------------------------------------------------------------
Total stockholders' equity 22,423 23,413
- ----------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 80,292 $81,091
============================================================================
The notes on pages 54 through 78 are an integral part of this statement.
51
<PAGE>
...........
CONSOLIDATED STATEMENT OF CASH FLOWS
International Business machines Corporation and Subsidiary Companies
(DOLLARS IN MILLIONS)
For the year ended December 31: 1995 1994 1993
Cash flow from operating activities:
Net earnings (loss) $4,178 $3,021 $(8,101)
Adjustments to reconcile net earnings(loss)
to cash provided from operating activities:
Effect of change in accounting principle - - 114
Effect of restructuring charges (2,119) (2,772) 5,230
Depreciation 3,955 4,197 4,710
Deferred income taxes 1,392 825 (1,335)
Amortization of software 1,647 2,098 1,951
Purchased in-process research and development 1,840 - -
(Gain) loss on disposition of fixed
and other assets (339) (11) 151
Other changes that provided (used) cash:
Receivables (530) 653 1,185
Inventories 107 1,518 583
Other assets (1,100) 187 1,865
Accounts payable 659 305 359
Other liabilities 1,018 1,772 1,615
- --------------------------------------------------------------------------------
Net cash provided from operating activities 10,708 11,793 8,327
- --------------------------------------------------------------------------------
Cash flow from investing activities:
Payments for plant, rental machines
and other property (4,744) (3,078) (3,154)
Proceeds from disposition of plant, rental machines
and other property 1,561 900 793
Acquisition of Lotus Development Corporation - net (2,880) - -
Investment in software (823) (1,361) (1,507)
Purchases of marketable securities and other
investments (1,315) (3,866) (2,721)
Proceeds from marketable securities and other
investments 3,149 2,476 2,387
Proceeds from the sale of Federal Systems Company - 1,503 -
- --------------------------------------------------------------------------------
Net cash used in investing activities (5,052) (3,426) (4,202)
- --------------------------------------------------------------------------------
Cash flow from financing activities:
Proceeds from new debt 6,636 5,335 11,794
Short-term borrowings less than 90 days - net 2,557 (1,948) (5,247)
Payments to settle debt (9,460) (9,445) (8,741)
Preferred stock transactions - net (870) (10) 1,091
Common stock transactions - net (4,656) 318 122
Cash dividends paid (591) (662) (933)
- --------------------------------------------------------------------------------
Net cash used in financing activities (6,384) (6,412) (1,914)
- --------------------------------------------------------------------------------
Effect of exchange rate changes on cash and
cash equivalents 65 106 (796)
- --------------------------------------------------------------------------------
Net change in cash and cash equivalents (663) 2,061 1,415
Cash and cash equivalents at January 1 7,922 5,861 4,446
- --------------------------------------------------------------------------------
Cash and cash equivalents at December 31 $7,259 $7,922 $5,861
================================================================================
Supplemental data:
Cash paid during the year for:
Income taxes* $1,453 $ 649 $ 813
Interest $1,720 $2,132 $2,410
================================================================================
*Prior years restated to include withholding taxes paid on repatriation
of dividends and royalties from foreign subsidiaries.
The notes on pages 54 through 78 are an integral part of this statement.
52
<PAGE>
...........
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
International Business machines Corporation and Subsidiary Companies
<TABLE><CAPTION>
Net
(DOLLARS IN MILLIONS) Unrealized
Gain on
Preferred Common Retained Translation Treasury Marketable
Stock Stock Earnings Adjustments Stock Securities Total
1993
<S> <C> <C> <C> <C> <C> <C> <C>
Stockholders' equity,
January 1, 1993 $ - $ 6,563 $ 19,124 $ 1,962 $ (25) $ - $ 27,624
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
1995
Net earnings 4,178 4,178
Cash dividends declared - common stock (572) (572)
Cash dividends declared - preferred stock (20) (20)
Common stock purchased and retired
(50,906,300 shares) (655) (4,209) (4,864)
Preferred stock purchased and retired
(8,534,289 shares) (828) (42) (870)
Common stock issued under employee
plans (4,271,948 shares) 279 279
Purchases (4,662,047 shares) and sales
(4,706,964 shares) of treasury stock
under employee plans - net (57) (7) (64)
Conversion of debentures (6,653,121 shares) 471 471
Tax reductions - employee plans 51 51
Translation adjustments 364 364
Net unrealized gain on
marketable securities 57 57
- --------------------------------------------------------------------------------------------------------------------
Stockholders' equity, December 31, 1995 $ 253 $ 7,488 $ 11,630 $ 3,036 $ (41) $ 57 22,423
====================================================================================================================
</TABLE>
The notes on pages 54 through 78 are an integral part of this statement.
53
<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
non-monetary assets and liabilities 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.
54
<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 carried at fair value and 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 up to four years. Periodic reviews are performed to ensure that
unamortized program costs remain recoverable from 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 for 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 and transaction costs by the average number of common shares
outstanding in the period.
B ACCOUNTING CHANGES
The company implemented new accounting standards in 1995, 1994 and 1993. None of
these standards had a material effect on the financial position or results of
operations of the company.
55
<PAGE>
..............
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
Effective January 1, 1995, the company implemented SFAS 114, "Accounting by
Creditors for Impairment of a Loan," and SFAS 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures." These standards
prescribe impairment measurements and reporting related to certain loans.
The company implemented SFAS 116, "Accounting for Contributions Received and
Contributions Made," effective January 1, 1995. This standard requires that
contributions made, including unconditional promises to give, be recognized as
expenses in the period made, at their fair values.
In 1995, the company implemented SFAS 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This standard
prescribes the method for asset impairment evaluation for long-lived assets and
certain identifiable intangibles that are either held and used or to be disposed
of. The company was generally in conformance with this standard prior to
adoption.
In 1995, the company adopted the American Institute of Certified Public
Accountants Statement of Position (SOP) 93-7, "Reporting on Advertising Costs."
This SOP provides guidance on financial reporting of advertising costs in annual
financial statements. The company was generally in conformance with this SOP
prior to adoption.
Effective January 1, 1994, the company implemented SFAS 115, "Accounting for
Certain Investments in Debt and Equity Securities." This standard addresses the
accounting and reporting for investments in equity securities that have readily
determinable fair values and for all investments in debt securities.
Effective January 1, 1993, the company implemented SFAS 112, "Employers'
Accounting for Postemployment Benefits." While the company was generally in
conformance 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.
In October 1995, the Financial Accounting Standards Board issued SFAS 123,
"Accounting for Stock Based Compensation," which is effective for 1996. Under
SFAS 123, companies can elect, but are not required, to recognize compensation
expense for all stock-based awards, using a fair value methodology. The company
expects to implement in 1996 the disclosure only provisions, as permitted by
SFAS 123.
C RISKS AND UNCERTAINTIES
The company is a leader in the creation, development and manufacture of advanced
information technologies, including computer systems, software, networking
systems, storage devices and microelectronics. These advanced technologies are
translated into value for our customers worldwide through our sales and
professional services units in more than 150 countries. At December 31, 1995,
approximately 65 percent of the company's net assets were located outside the
United States, primarily in the major economically developed countries of Europe
and Asia, with the highest being approximately 15 percent in Japan. Additional
geographic information on the company's assets can be found in note AA on pages
77 and 78.
The diversity and breadth of the company's product and services offerings,
customers, and geographic operations mitigate significantly the risk that a
severe impact will occur in the near term as a result of changes in its customer
base, competition, sources of supply, or composition of its markets. As a
result, it is unlikely that any one event, such as loss of any individual
customer or supplier, entrance of new competitors into specific markets, or
decline in business conditions in particular markets would have a severe impact
on the company's operating results.
56
<PAGE>
..............
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
Management uses estimates in preparing the consolidated financial statements, in
conformity with generally accepted accounting principles. Significant estimates
include collectibility of accounts receivable, warranty costs, profitability on
long-term contracts, as well as recoverability of capitalized software costs,
long-term fixed assets and residual values. The company regularly assesses these
estimates and, while actual results may differ from these estimates, management
believes that material changes will not occur in the near term.
D INVENTORIES
At December 31:
(DOLLARS IN MILLIONS) 1995 1994
Finished goods $ 1,241 $ 1,442
Work in process 4,990 4,636
Raw materials 92 256
------- -------
Total $ 6,323 $ 6,334
======= =======
E PLANT, RENTAL MACHINES AND OTHER PROPERTY
At December 31:
(DOLLARS IN MILLIONS) 1995 1994
Land and land improvements $ 1,348 $ 1,437
Buildings 12,653 13,093
Plant, laboratory and office equipment 26,658 27,084
------- -------
40,659 41,614
Less: Accumulated depreciation 25,604 26,299
------- -------
15,055 15,315
Rental machines and parts 3,322 3,206
Less: Accumulated depreciation 1,798 1,857
------- -------
1,524 1,349
Total $16,579 $16,664
======= =======
F INVESTMENTS AND SUNDRY ASSETS
At December 31:
(DOLLARS IN MILLIONS) 1995 1994*
Net investment in sales-type leases** $14,007 $14,751
Less: Current portion - net 5,961 6,351
------- -------
8,046 8,400
Deferred taxes 3,376 4,533
Prepaid pension cost 2,535 1,528
Non-current customer loan receivables 2,390 2,398
Installment payment receivables 844 817
Investments in business alliances 509 380
Goodwill, less accumulated amortization
(1995, $913; 1994, $648) 870 427
Other investments and sundry assets 2,033 1,643
------- -------
Total $20,603 $20,126
======= =======
*Reclassified to conform to 1995 presentation.
**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 $470 million and
$535 million at December 31, 1995 and 1994, respectively, and is reflected
net of unearned income at these dates of approximately $2,100 million and
$2,600 million, respectively. Scheduled maturities of minimum lease
payments outstanding at December 31, 1995, expressed as a percentage of the
total, are approximately as follows: 1996, 45 percent; 1997, 30 percent;
1998, 17 percent; 1999, 7 percent; and 2000 and after, 1 percent.
57
<PAGE>
..............
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
G DEBT
SHORT-TERM DEBT
At December 31:
(DOLLARS IN MILLIONS) 1995 1994
Commercial paper $ 4,933 $ 2,544
Short-term loans 3,755 2,977
Long-term debt: Current maturities 2,881 4,049
------- -------
Total $11,569 $ 9,570
======= =======
The weighted-average interest rates for commercial paper at December 31, 1995
and 1994, were approximately 5.7 percent and 4.9 percent, respectively. The
weighted-average interest rates for short-term loans at December 31, 1995 and
1994, were approximately 6.6 percent for both years.
LONG-TERM DEBT
At December 31:
(DOLLARS IN MILLIONS) 1995 1994
Maturities
U.S. Dollars:
Debentures:
7% 2025 $ 600 $ -
7% 2045 150 -
7-1/2% 2013 550 550
8-3/8% 2019 750 750
Notes :
5-1/2% to 7-1/2% 1996-2002 3,025 3,325
7-1/2% to 9-1/2% 1996-2001 186 641
Medium-term note program: 5.8% average 1996-2008 1,730 2,803
Other U.S. dollars: 5.4% to 7.9% 1996-2012 416 558
----- -----
7,407 8,627
Other currencies (average interest rate
at December 31, 1995, in parentheses):
Japanese yen (3.6%) 1996-2014 4,149 4,769
Swiss francs (5.1%) 1996 43 629
European currency units (9.1%) 1995 - 400
Canadian dollars (10.1%) 1996-1999 431 638
French francs (9.7%) 1996-2002 358 858
Australian dollars (7.8%) 1996-1998 320 326
Other (10.1%) 1996-2017 256 371
------ ------
12,964 16,618
Less: Net unamortized discount 23 21
------ ------
12,941 16,597
Less: Current maturities 2,881 4,049
------ ------
Total $10,060 $12,548
======= =======
Annual maturity and sinking fund requirements in millions of dollars on
long-term debt outstanding at December 31, 1995, are as follows: 1996, $2,881;
1997, $3,197; 1998, $1,500; 1999, $440; 2000, $1,783; 2001 and beyond, $3,163.
58
<PAGE>
..............
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
H TAXES
(DOLLARS IN MILLIONS) 1995 1994 1993
For the year ended December 31:
Earnings (loss) before income taxes:
U.S. operations $ 2,149 $ 1,574 $(6,073)
Non-U.S. operations 5,664 3,581 (2,724)
------- ------- --------
$ 7,813 $ 5,155 $(8,797)
======= ======= ========
The provision (benefit) for income taxes
by geographic operations is as follows:
U.S. operations $ 1,538 $ 654 $ (505)
Non-U.S. operations 2,097 1,480 (305)
------- ------- --------
$ 3,635 $ 2,134 $ (810)
======= ======= ========
Total provision (benefit) for income taxes
The components of the provision (benefit)
for income taxes by taxing jurisdiction
are as follows:
U.S. federal:
Current $ 85 $ 49 $ (4)
Deferred 1,075 74 (890)
Net deferred investment tax credits - - (51)
------- ------- --------
1,160 123 (945)
U.S. state and local:
Current 65 68 26
Deferred - - 23
------- ------- --------
65 68 49
Non-U.S.:
Current 2,093 1,192 554
Deferred 317 751 (468)
------- ------- --------
2,410 1,943 86
------- ------- --------
Total provision (benefit) for income taxes 3,635 2,134 (810)
Social security, real estate, personal property
and other taxes 2,566 2,465 2,614
------- ------- --------
Total taxes $ 6,201 $ 4,599 $ 1,804
======= ======= ========
The effect of tax law changes on deferred tax assets and liabilities did not
have a significant impact on the company's effective tax rate in 1995 and 1994
and had a beneficial impact of $170 million in 1993.
59
<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:
At December 31:
(DOLLARS IN MILLIONS) 1995 1994*
DEFERRED TAX ASSETS
Retiree medical benefits $ 2,632 $ 2,500
Restructuring charges 2,003 2,446
Capitalized research and development 1,772 2,057
Foreign tax credits 1,183 1,380
Alternative minimum tax credits 859 738
Inventory 674 633
Doubtful accounts 517 453
General business credits 452 452
Equity alliances 407 445
Employee benefits 405 363
Intracompany sales and services 325 357
Foreign tax loss carryforwards 303 469
State and local tax loss carryforwards 236 370
Warranty 233 163
Software income deferred 205 199
Depreciation 172 249
Retirement benefits 101 127
U.S. federal tax loss carryforwards - 230
Other 2,800 2,564
------- -------
Gross deferred tax assets 15,279 16,195
Less: Valuation allowance 3,868 4,551
------- -------
Total deferred tax assets $11,411 $11,644
======= =======
DEFERRED TAX LIABILITIES
Sales-type leases $ 2,898 $ 2,862
Retirement benefits 1,919 1,061
Depreciation 1,787 1,653
Software costs deferred 967 1,283
Other 1,320 823
------- -------
Gross deferred tax liabilities $ 8,891 $ 7,682
======= =======
*Reclassified to conform to 1995 presentation.
The estimated reversal periods for the largest deductible temporary differences
are: Retiree Medical - 1 to 30 years; Restructuring - 1 to 7 years.
The valuation allowance applies to U.S. federal tax credits, 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, 1995, was a decrease of $683 million, of which approximately $600
million was due to the realization of previously unrecognized benefits in the
current year. It is reasonably possible that the deferred tax asset valuation
allowance could decrease significantly in the near term, depending on the
company's ability to generate sufficient taxable income in multiple tax
jurisdictions.
60
<PAGE>
..............
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
The consolidated effective income tax rate was 47 percent in 1995, 41 percent in
1994 and (9) percent in 1993.
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: 1995 1994* 1993*
Statutory rate 35% 35% (35)%
U.S. valuation allowance (2) - 20
Foreign tax differential 2 5 7
State and local - net 1 1 -
Other 2 - (1)
---- ---- ----
Effective rate before purchased in-process
research and development 38% 41% (9)%
Purchased in-process research and development 9 - -
---- ---- -----
Effective rate 47% 41% (9)%
*Reclassified to conform to 1995 presentation.
For tax return purposes, the company has available tax credit carryforwards of
approximately $2,866 million, of which $67 million expire in 1996, $776 million
expire in 1998, $692 million expire in 1999 and the remainder thereafter. The
company also has state and local, and foreign tax loss carryforwards, the tax
effect of which is $539 million. Most of these carryforwards are available for
ten or more years.
Undistributed earnings of non-U.S. subsidiaries included in consolidated
retained earnings amounted to $12,565 million at December 31, 1995, $11,280
million at December 31, 1994 and $10,915 million at December 31, 1993. 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 ADVERTISING
The company expenses advertising costs as incurred. Advertising expense amounted
to $1,219 million, $977 million and $716 million in 1995, 1994 and 1993,
respectively.
J RESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering expenses amounted to $6,010 million in
1995, $4,363 million in 1994 and $5,558 million in 1993. Expenditures for
product-related engineering included in these amounts were $783 million, $981
million and $1,127 million in 1995, 1994 and 1993, respectively.
Expenditures of $5,227 million in 1995, $3,382 million in 1994 and $4,431
million in 1993 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 $2,997 million, $793 million and $1,097 million
in 1995, 1994 and 1993, respectively.
Included in the 1995 research, development and engineering expenses as part of
software-related activities was a $1,840 million charge for purchased in-process
research and development in connection with the acquisition of Lotus in July
1995.
61
<PAGE>
..............
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
K 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. As of December 31, 1995, the company had
utilized all of the restructuring reserve balances except $225 million, which is
necessary for actions that have been delayed into 1996.
Remaining cash outlays associated with work-force-related activities are
expected to total $2.0 billion, of which $.5 billion will be expended in 1996.
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. Cash
requirements related to excess space charges are expected to be expended as
follows: $413 million in 1996, $321 million in 1997, $282 million in 1998 and
$851 million in 1999 and beyond.
L INTEREST ON DEBT
Interest paid and accrued on borrowings of the company and its subsidiaries
amounted to $1,600 million in 1995, $2,006 million in 1994 and $2,298 million in
1993. Of these amounts, $23 million in 1995, $20 million in 1994 and $46 million
in 1993 were capitalized. The remainder was charged to cost of rentals and
financing, and interest expense. The lower levels of expense were a result of
lower average interest rates and a decrease of total debt outstanding of $.5
billion in 1995 versus 1994 and a decrease of total debt outstanding of $5.2
billion in 1994 versus 1993. The average interest rate for total debt was 7.2
percent, 8.0 percent and 7.7 percent in 1995, 1994 and 1993, respectively.
M 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 U, "Nonpension Postretirement Benefits," on pages 70 through 72; note T,
"Retirement Plans," on pages 68 through 70; and note K, "Restructuring Actions,"
above.
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 $223 million and
$179 million at December 31, 1995 and 1994, respectively. The increase in the
accrual relates to expected costs of post-closure activities and reassessment of
remediation activities at operating facilities.
The amounts accrued do not cover sites that are in the preliminary stages of
investigation where neither the company's percentage of responsibility nor the
extent of cleanup required has been identified. Also excluded is the cost of
internal environmental protection programs that are primarily preventive in
62
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
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
environmental costs in future periods are subject to changes in environmental
remediation regulations.
N 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 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.
O CUSTOMER FINANCING
The primary focus of IBM's worldwide customer financing offerings is to support
customers in their acquisitions of the company'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.
Because customer financing is different in nature from the company's
manufacturing, development and services businesses, management believes that the
aforementioned type of comparative disclosure enhances the understanding and
analysis of the consolidated financial statements.
63
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
Statement of Financial Position
At December 31: Customer IBM with Customer
Financing Financing
on an Equity Basis
(DOLLARS IN MILLIONS) 1995 1994* 1995 1994*
Assets:
Cash and cash Equivalents $ 808 $ 1,304 $ 6,451 $ 6,618
Notes and accounts receivable - - 10,981 10,729
Net investment in sales-type leases 14,096 14,890 - -
Working capital financing receivables 3,886 2,539 - -
Loans receivable 5,481 4,997 - -
Inventories 87 101 6,252 6,246
Plant, rental machines and other
property, net of accum. depreciation 2,924 2,672 15,101 15,319
Other assets 2,164 2,167 13,901 15,389
Investment in customer financing - - 4,768 4,175
------- ------- ------- -------
Total assets $29,446 $28,670 $57,454 $58,476
======= ======= ======= =======
Liabilities and stockholders' equity:
Taxes, accrued expenses and
other liabilities $ 6,592 $ 6,487 $33,124 $32,109
Debt 19,722 19,164 1,907 2,954
------- ------- ------- -------
Total liabilities 26,314 25,651 35,031 35,063
Stockholders' equity/invested
capital 3,132 3,019 22,423 23,413
------- ------- ------- -------
Total liabilities and
stockholders' equity $29,446 $28,670 $57,454 $58,476
======= ======= ======= =======
*Reclassified to conform to 1995 presentation.
64
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..............
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the year ended December 31: Customer IBM with Customer Financing
Financing on an Equity Basis
(DOLLARS IN MILLIONS) 1995 1994 1993 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Finance and other income:
Finance income $ 2,110 $ 2,026 $ 2,485 $ - $ - $ -
Rental income, net of depreciation 415 338 285 469 589 692
Sales 1,001 1,160 1,391 67,588 59,991 57,483
Other income 367 933 850 1,473 1,423 1,184
------- ------- ------- ------- ------- --------
Total finance and other income 3,893 4,457 5,011 69,530 62,003 59,359
Interest and other costs and expenses 2,782 3,245 3,994 61,717 56,848 68,156
------- ------- ------- ------- ------- --------
Net earnings (loss) before
income taxes 1,111 1,212 1,017 7,813 5,155 (8,797)
Provision (benefit) for income taxes 428 505 443 3,635 2,134 (810)
------- ------- ------- ------- ------- --------
Net earnings (loss) before change in
accounting principle 683 707 574 4,178 3,021 (7,987)
Effect of change in accounting
principle - - - - - (114)
------- ------- ------- ------- ------- --------
Net earnings (loss) $ 683 $ 707 $ 574 $ 4,178 $3,021 $(8,101)
======= ======= ======= ======= ======= ========
</TABLE>
<TABLE><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) 1995 1994 1993 1995 1994 1993
Net cash provided from
operating activities $ 3,712 $ 2,669 $ 3,004 $ 9,250 $ 8,393 $ 4,499
Net cash used in
investing activities
(3,968) (249) (284) (3,338) (2,446) (3,094)
Net cash used in
financing activities
(198) (3,294) (1,680) (6,186) (3,118) (234)
Effect of exchange rate changes
on cash and cash equivalents (42) 82 (47) 107 24 (749)
------- ------- ------- ------- ------- --------
Net change in cash and cash
equivalents (496) (792) 993 (167) 2,853 422
Cash and cash equivalents at
January 1 1,304 2,096 1,103 6,618 3,765 3,343
------- ------- ------- ------- ------- --------
Cash and cash equivalents at
December 31 $ 808 $ 1,304 $ 2,096 $ 6,451 $ 6,618 $ 3,765
======== ======= ======= ======= ======= =======
</TABLE>
Customer financing debt at December 31, 1995, consisted of borrowings with
external financial institutions of $15,418 million and intracompany borrowings
of $4,304 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 22.6
percent in 1995, compared to 24.5 percent in 1994. 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.
65
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..............
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
Such fees are eliminated from the Consolidated Statement of Operations. The 1994
earnings included 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.
P RENTAL EXPENSE AND LEASE COMMITMENTS
Rental expense, including amounts charged to inventories and fixed assets and
excluding amounts charged to restructuring, was $1,145 million in 1995, $1,276
million in 1994 and $1,686 million in 1993. The table below depicts gross
minimum rental commitments, under non-cancelable leases; amounts related to
vacant space, which the company had reserved for in restructuring charges and
other actions; and sublease income commitments. These amounts generally reflect
activities related to office space.
Beyond
(DOLLARS IN MILLIONS) 1996 1997 1998 1999 2000 2000
Gross rental commitments $1,191 $1,035 $ 930 $ 794 $ 694 $2,263
Vacant space 424 374 333 259 236 590
Sublease income commitments 105 94 82 68 60 109
Q LONG-TERM PERFORMANCE PLAN
Incentive awards are provided to officers and other key employees under the
terms of the IBM 1994 Long-Term Performance Plan (the "Plan"), which was
approved by stockholders in April 1994. The Plan is administered by the
Executive Compensation and Management Resources Committee of the Board of
Directors. The committee determines the type and certain terms, including
vesting provisions of the award to be granted, which may include stock,
restricted stock, stock options, Stock Appreciation Rights (SARs), 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 approximated 5 percent of the outstanding common stock as
determined on February 10, 1994. Prior to April 25, 1994, awards 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
optionees upon exercise of an option may be made using IBM stock, as well as
cash.
SARs provide eligible employees the difference between the average IBM stock
price on the date of grant and the average market price of the stock on the date
of exercising the right. SARs can be issued in tandem or combination with
options, and payment can be made to the employee in cash and/or stock of
equivalent value, at the company's discretion. There were approximately 2.7
million SARs outstanding at December 31, 1995, that were issued in 1993 at
$46.31 in combination with options. Under the terms of the award, the SARs vest
over four years and expire in 2003.
66
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
The following table summarizes option activity of the Long-Term Performance
Plans during 1995, 1994 and 1993:
Number of shares under option 1995 1994 1993
Balance at January 1 34,063,317 29,260,724 35,621,963
Options granted 6,468,702 6,863,219 13,744,772
Options exercised (3,695,789) (235,044) -
Options terminated (2,553,327) (1,825,582) (20,106,011)
----------- ----------- -----------
Balance at December 31 34,282,903 34,063,317 29,260,724
=========== =========== ===========
Exercisable at December 31 19,176,410 16,666,537 14,636,324
In April 1993, the Nominating and Executive Compensation Committee, the
committee of the Board of Directors then responsible for administering the plan,
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 1995 and 1994 were at an average option price of $50.76
and $46.42 per share, respectively. There were no options exercised in 1993. The
shares under option at December 31, 1995, were at the following exercise
prices*:
Options
Options Outstanding Currently Exercisable
No. of Wtd. Avg. Wtd. Avg. No. of Wtd. Avg.
Options Exercise Contractual Options Exercise
Price Life (in years) Price
$ 43 - 80 20,914,604 $57 8 6,630,591 $ 50
$ 81 - 90 2,763,325 89 6 2,545,045 90
$ 91 - 100 2,538,160 96 5 2,003,960 97
$ 101 - 120 4,365,299 111 3 4,295,299 111
$ 121 - 160 3,701,515 137 3 3,701,515 137
---------- ----------
34,282,903 19,176,410
*Shares under option at December 31, 1994 and 1993, were at option prices
ranging from $43.00 to $159.50 per share.
There were 20,975,229 and 27,842,801 unused shares available for granting under
the 1994 Long-Term Performance Plan as of December 31, 1995 and 1994,
respectively. As of December 31, 1993, there were 6,011,858 shares available
under the 1989 Long-Term Performance Plan.
R STOCK PURCHASE PLAN
The IBM Employees 1995 Stock Purchase Plan enables employees and selected
officers and executives to purchase full or fractional shares of IBM common
stock through payroll deductions of up to 10 percent of eligible compensation.
The price an employee pays is 85 percent of the average market price on the last
day of an applicable pay period.
67
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..............
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
During 1995, employees purchased 4,479,340 shares, all of which were treasury
shares, for which $344 million was paid to IBM. There were 23,312,881 reserved
unissued shares available for purchase under the plan at December 31, 1995.
S STOCK REPURCHASE PROGRAMS
During 1995, the IBM Board of Directors authorized the company to purchase up to
$7.5 billion of IBM common stock. The company repurchased 50,906,300 shares at a
cost of $4,864 million during 1995, which resulted in a reduction of $63,632,875
in the stated capital (par value) associated with common stock. No shares were
repurchased in 1994 or 1993. The repurchased shares were retired and restored to
the status of authorized but unissued shares. The company plans to purchase
shares on the open market from time to time, depending on market conditions.
Also during 1995, the IBM Board of Directors authorized the company to purchase
all of its outstanding Series A 7 1/2 percent preferred stock depositary shares.
The company repurchased 8,534,289 shares at a cost of $870 million during 1995,
which resulted in a reduction of $85,343 in the stated capital (par value)
associated with preferred stock. The repurchased shares were retired and
restored to the status of authorized but unissued shares. The company plans to
purchase remaining shares on the open market and in private transactions from
time to time, depending on market conditions.
T RETIREMENT PLANS
The company and its subsidiaries have defined benefit retirement plans covering
substantially all regular employees. The total cost of all plans for 1995, 1994
and 1993 was $165 million, $681 million and $1,525 million, respectively.
Net periodic pension cost of the U.S. retirement plan and selected non-U.S.
plans for the years ended December 31 included the following components:
U.S. Plan Non-U.S. Plans
1995 1994 1993 1995 1994 1993
Expected long-term rate of
return on plan assets 9.25% 9.5% 9.5% 6.25-10% 5.5-9% 5-10%
(DOLLARS IN MILLIONS)
Service cost:
Benefits earned during
the period $ 315 $ 542 $ 571 $ 386 $467 $ 576
Termination incentive expenses - - 263 - - -
Interest cost on the projected
benefit obligation 2,098 2,033 1,909 1,325 1,107 1,064
Return on plan assets:
Actual (5,500) 327 (3,990) (1,848) 329 (3,036)
Deferred 2,958 (2,826) 1,605 403 (1,540) 1,891
Net amortizations (123) (65) (62) 12 19 12
Curtailment losses - - 431 128 269 215
------- ------- ------ ------ ------- -------
Net periodic pension cost $ (252) $ 11 $ 727 $ 406 $ 651 $ 722
======= ======= ====== ======= ======== ======
Total net periodic pension
cost for all non-U.S. plans $ 417 $ 667 $ 798
======= ======== ======
68
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..............
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
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 in 1993 represented 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. In 1993, the
curtailment losses and termination charges, referred to above, were included in
restructuring charges.
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, 1995 and 1994, the
projected benefit obligation was $82 million and $64 million, respectively. The
net unrecognized costs of the SERP were $64 million and $61 million, and the
amounts included in the Consolidated Statement of Financial Position were
pension liabilities of $18 million and $3 million as of December 31, 1995 and
1994, respectively. These amounts are in addition to the U.S. retirement plan
financial information included herein.
The table below provides information on the status of the U.S. retirement plan
and material non-U.S. plans.
The funded status at December 31 was as follows:
U.S. Plan Non-U.S. Plans
1995 1994 1995 1994
Assumptions:
Discount rate 7.25% 8.25% 4.5-9% 5.0-9.0%
Long-term rate of
compensation increase 5.0% 5.0% 1.5-6.5% 2.8-7.0%
(DOLLARS IN MILLIONS)
Actuarial present value of
benefit obligations:
Vested benefit obligation $ (26,413) $(22,553) $ (17,788) $ (15,454)
Accumulated benefit
obligation $ (28,070) $(24,186) $ (18,771) $ (16,743)
Projected benefit obligation $ (30,235) $(25,783) $ (20,294) $ (18,751)
Plan assets at fair value 31,209 26,780 19,693 17,424
-------- -------- -------- ---------
Projected benefit obligation less
than (in excess of) plan assets 974 997 (601) (1,327)
Unrecognized net loss (gain) 1,976 1,224 (436) (17)
Unrecognized prior service cost 230 248 267 276
Unrecognized net asset established
at January 1, 1986 (1,193) (1,334) (143) (152)
-------- -------- -------- ---------
Prepaid pension cost
(pension liability)
recognized in the Consolidated
Statement of Financial Position $ 1,987 $ 1,135 $ (913) $ (1,220)
======== ======== ======== =========
69
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
The effect on the company's results of operations and financial condition from
changes in the estimates and assumptions used in computing pension expense and
prepaid pension cost or pension liability is mitigated by the delayed
recognition provisions of SFAS 87, "Employers' Accounting for Pensions," with
the exception of the effects of curtailments and early terminations, which are
recognized immediately.
The U.S. plan's projected benefit obligation increased in 1995 primarily as a
result of a change in the discount rate assumption, which increased the
projected benefit obligation $3,217 million.
It is the company's practice to fund amounts for pensions sufficient to meet the
minimum requirements set forth in applicable employee benefit laws and with
regard to local tax laws. Additional amounts are contributed from time to time
when deemed appropriate by the company. Liabilities for amounts in excess of
these funding levels are accrued and reported in the company's Consolidated
Statement of Financial Position. 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 IBMRetirement Plan Trust Fund through 1994. Through December 31, 1994, the
company 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. In 1994, the
company announced major changes to the plan that took effect in 1995. Under a
new formula, which is being 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, these 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, 1995 and 1994, was 92,133 and 85,009,
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.
U NONPENSION POSTRETIREMENT BENEFITS
The company and its U.S. subsidiaries have defined benefit postretirement plans
that provide medical, dental and life insurance for retirees and eligible
dependents. Plan cost maximums for those who retired prior to January 1, 1992,
will take effect beginning with the year 2001. Plan cost maximums for all other
employees will take effect upon retirement.
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 included a projected healthcare cost
trend rate of 6 percent.
70
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
The effect of a 1 percent annual increase in the assumed healthcare cost trend
rate would increase the accumulated postretirement benefit obligation at
December 31, 1995, by approximately $35 million; the 1995 annual costs would not
be materially affected.
Net periodic postretirement benefit cost for U.S. retirees for the years ended
December 31 included the following components:
1995 1994 1993
Expected long-term rate of return on plan assets 9.25% 9.5% 9.5%
(DOLLARS IN MILLIONS)
Service cost $ 40 $ 51 $ 53
Interest cost on the accumulated
postretirement benefit obligation 520 512 566
Return on plan assets:
Actual (198) 22 (201)
Deferred 116 (125) 84
Net amortizations and other (123) (38) 29
Curtailment loss -- -- 732
----- ----- ------
Net periodic postretirement benefit cost $ 355 $ 422 $1,263
===== ===== ======
In the Consolidated Statement of Operations for 1993, the curtailment loss
referred to above was included with restructuring charges.
The table below provides information on the status of the U.S. plans.
The funded status at December 31 was as follows:
1995 1994
Assumed discount rate 7.25% 8.25%
(DOLLARS IN MILLIONS)
Accumulated postretirement benefit obligation:
Retirees $(5,661) $(5,411)
Fully eligible active plan participants (704) (567)
Other active plan participants (653) (530)
-------- --------
Total
(7,018) (6,508)
Plan assets at fair value 886 1,028
-------- --------
Accumulated postretirement benefit obligation in
excess of plan assets
(6,132) (5,480)
Unrecognized net loss 718 505
Unrecognized prior service cost (660) (744)
-------- --------
Accrued postretirement benefit cost recognized
in the Consolidated Statement of Financial Position $(6,074) $(5,719)
======== ========
In 1995, the increase in the accumulated postretirement benefit obligation of
$510 million resulted principally from the change in the assumed discount rate,
partially offset by a decrease in the projected healthcare cost trend rate and
plan cost experience.
71
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
It is the company's practice to fund amounts for postretirement benefits with an
independent trustee, as deemed appropriate from time to time. The plan assets
include corporate equities and government securities. The accounting for the
plan is based on the written plan.
Certain of the company's non-U.S. subsidiaries have similar plans for retirees.
However, most retirees outside the United States are covered by
government-sponsored and administered programs, and the obligations and cost of
these programs are not significant to the company.
V LINES OF CREDIT
In December 1993, as part of IBM's ongoing efforts toward greater efficiency of
its treasury activities, and to ensure appropriate liquidity levels, 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, 1995, were $14.6
billion, compared to $15.1 billion at December 31, 1994. Interest rates on
borrowings vary from country to country depending on local market conditions.
W SALE AND SECURITIZATION OF RECEIVABLES
The company received total cash proceeds of approximately $3.4 billion and $12.6
billion in 1995 and 1994, respectively, from the sale and securitization of
primarily trade receivables. At year-end 1995, the company had a net balance of
$1.2 billion in assets under management from the securitization of lease and
trade receivables, compared to $1.8 billion at year-end 1994. 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.
X FINANCIAL INSTRUMENTS
The following presents information on certain significant on- and off-balance
sheet financial instruments, including derivatives.
In assessing the fair value of these financial instruments, both derivative and
non-derivative, the company has used a variety of methods and assumptions, which
were based on estimates of market conditions and risks existing at December 31,
1995 and 1994. 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 represent a general approximation of
possible value and may never actually be realized.
72
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
FINANCIAL INSTRUMENTS ON-BALANCE SHEET (EXCLUDING DERIVATIVES)
Financial assets for which carrying values approximate fair value
include cash and cash equivalents, marketable securities, notes and
other accounts receivable and other investments.
Financial liabilities for which carrying values approximate fair
value include accounts payable and other accrued expenses and
liabilities, as well as short-term debt. The fair value of the
company's long-term debt was approximately $10,100 million and
$12,000 million at December 31, 1995 and 1994, respectively.
The company originates financing for customers in a variety of
industries throughout the world, and has a diversified portfolio of
capital equipment financing for end users and working capital
financing for dealers. With the growth of the company's working
capital financing business, the concentration of such financings for
certain large dealers and remarketers of information industry
products has become more significant. Such loans are typically
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.
The following table summarizes the company's marketable securities
and other investments, all of which were considered available for
sale.
<TABLE><CAPTION>
MARKETABLE SECURITIES AND OTHER INVESTMENTS
At December 31:
Carrying Value
(DOLLARS IN MILLIONS) 1995 1994*
<S> <C> <C>
Current marketable securities:
U.S. government securities $ 222 $ 1,020
Time deposits and other bank obligations 93 459
Non-U.S. government securities and
other fixed-term obligations 127 1,153
-------- ----------
Total $ 442 $ 2,632
======== ==========
Non-current marketable securities:**
Time deposits and other bank obligations $ 97 $ -
Non-U.S. government securities and
other fixed-term obligations 72 82
-------- ----------
Total $ 169 $ 82
======== ==========
Other investments:**
Alliance investments on cost method $ 128 $ 121
======== ==========
</TABLE>
**Reclassified to conform to 1995 presentation.
**Included within Investments and Sundry Assets on the Consolidated
73
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
FINANCIAL INSTRUMENTS OFF-BALANCE SHEET (EXCLUDING DERIVATIVES)
IBM has guaranteed certain loans and financial commitments of
affiliates. The fair market values of these financial guarantees
were $794 million and $727 million at December 31, 1995 and 1994,
respectively. Additionally, the company is contingently liable for
commitments of various ventures to which it is a party and for
certain receivables sold with recourse. These commitments, which in
the aggregate were approximately $200 million and $900 million at
December 31, 1995 and 1994, respectively, are not expected to have a
material adverse effect on the company's financial position or
results of operations.
The company's dealers had unused lines of credit available from IBM
for working capital financing of approximately $1.0 billion and $.9
billion at December 31, 1995 and 1994, respectively.
DERIVATIVE FINANCIAL INSTRUMENTS
The following table summarizes the notional value, carrying value
and fair value of the company's derivative financial instruments on
and off the balance sheet. The notional value at year end provides
an indication of the extent of the company's involvement in such
instruments, but does not represent exposure to market risk.
<TABLE><CAPTION>
At December 31, 1995 At December 31, 1994*
Notional Carrying Fair Notional Carrying Fair
Value Value Value** Value Value Value**
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Interest rate
and currency contracts $ 13,600 $ (88) $ (161) $ 19,800 $ 2 $ 201
Option contracts 4,800 18 41 4,400 8 8
-------- ---------- -------- -------- ------ ------
Total $ 18,400 $ (70) $ (120) $ 24,200 $ 10 $ 209
======== ========== ======== ======== ====== ======
</TABLE>
Bracketed amounts are liabilities.
**Reclassified to conform to 1995 presentation.
**The estimated fair value of derivatives both on- and off-balance
sheet at December 31, 1995 and 1994, consists of assets of $153
million and $448 million and liabilities of $273 million and $239
million, respectively.
In the normal course of business, the company enters into a variety
of derivative financial 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 swaps or currency
swaps are then used to match the interest rates and currencies of
its debt to the related customer financing receivables. These swap
contracts are principally one to five years in duration. The company
uses an internal regional center to manage the cash of its
subsidiaries. This regional center principally uses currency swaps
to convert cash flows in a cost-effective manner, predominantly for
the company's European subsidiaries. The terms of the swaps are
generally less than one year.
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 to manage the currency
risk. The terms of these instruments are generally less than one
year.
74
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
Interest and currency rate differentials accruing under interest
rate and currency contracts related to the customer financing
business are recognized over the life of the contracts in interest
expense, and the effects of contracts related to intracompany
funding are recognized over the life of the contract in interest
income. For purchased options that 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, 1995 and 1994, there were no material deferred gains or
losses. The premiums associated with entering into option contracts
are generally amortized over the life of the options and are not
material to the company's results. Unamortized premiums are included
in prepaid assets. All written options are marked to market monthly
and are not material to the company's results.
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 that
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 position in the future.
Y 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 76 shows revenue by
classes of similar products or services. Financial information by
geographic area is summarized in note AA on pages 77 and 78.
For purposes of classifying similar information technology products,
general purpose computer systems that operate on a large class of
applications are classified as processor servers when the systems
are simultaneously used by multiple users at one time, or as clients
when the systems are used by one user at a time. Servers include the
System/390, POWERparallel, AS/400, RISC System/6000 and personal
computer server products. Personal systems clients include personal
computers and RISC System/6000 client products. Other clients
include 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.
75
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
Some products logically fit in more than one class and are assigned to a
specific class based on a variety of factors. Over time, products tend to
overlap, merge into or split from existing classes as a result of changing
technologies, market perceptions and/or customer use. For example, market
demand may create requirements for technological enhancements to permit a
peripheral product to be functionally integrated with a display, a
telecommunication device and a processor to form a workstation. Such
interchangeability and technological progress tend to make year-to-year
comparisons less valid than they would be in an industry less subject
to rapid change.
Revenue by Classes of Similar Products or Services
<TABLE><CAPTION>
Consolidated U.S. Only
(DOLLARS IN MILLIONS) 1995 1994* 1993* 1995 1994* 1993*
<S> <C> <C> <C> <C> <C> <C>
Information technology:
Processors:
Servers** $ 12,597 $ 1,553 $ 11,869 $ 4,464 $ 3,958 $ 4,003
Clients:
Personal systems** 11,199 9,731 8,269 4,401 4,046 3,754
Other clients** 1,478 1,538 2,006 480 463 689
Peripherals:
Storage** 3,306 3,551 4,808 1,121 1,375 1,898
Other peripherals** 2,085 2,006 2,149 764 810 901
OEM hardware 4,490 3,248 1,293 2,824 1,677 726
Services 12,714 9,715 7,648 4,606 3,709 3,037
Software 12,657 11,346 10,953 4,117 3,926 3,898
Maintenance 7,409 7,222 7,295 2,618 2,648 2,726
Financing and other 4,005 4,142 4,109 1,394 1,506 1,754
-------- ------- -------- ------- ------- -------
Subtotal 71,940 64,052 60,399 26,789 24,118 23,386
Federal Systems Company - - 2,317 - - 2,317
-------- ------- -------- ------- ------- -------
Total $ 71,940 $ 64,052 $ 62,716 $ 26,789 $ 24,118 $ 25,703
======== ======= ======== ======= ======= =======
**Reclassified to conform to 1995 presentation.
**Hardware only, includes applicable rental revenue, excludes functions not embedded, software and maintenance.
</TABLE>
76
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
Z SUBSEQUENT EVENTS
On January 31, 1996, the company announced it had entered into a
definitive merger agreement under which the company will commence a
cash tender offer for Tivoli Systems Inc. at $47.50 per share.
Tivoli, based in Austin, Texas, is a leading provider of systems
management software and services that help customers reduce the cost
and complexity of managing distributed client/server networks of
personal computers and workstations.
The net cash cost of the transaction to the company is expected to
be $743 million, including the purchase of Tivoli's outstanding
shares, the vesting of a portion of the employee stock options, fees
and expenses, less Tivoli's current cash.
When the merger is completed, it will result in a one-time charge to
the company's earnings. The charge primarily involves expensing, as
called for by accounting requirements, of amounts assigned to
research and development of Tivoli software that has not reached
technological feasibility. The charge will be taken in the quarter
in which the merger is completed. The specific amount of the charge
cannot be determined at this time based on currently available
information.
AA GEOGRAPHIC AREAS
Sales and services in the United States and Canada are managed as a
single enterprise. However, in compliance with SFAS 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 1995, 1994 and 1993.
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.
77
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
DOLLARS IN MILLIONS) 1995 1994 1993*
UNITED STATES
Revenue - Customers $ 26,789 $ 24,118 $ 25,703
Interarea 10,553 6,336 7,297
--------- -------- --------
Total $ 37,342 $ 30,454 $ 33,000
Net earnings (loss) 599 969 (5,566)
Assets at December 31 38,584 37,156 38,333
EUROPE/MIDDLE EAST/AFRICA
Revenue - Customers $ 25,238 $ 23,034 $ 21,779
Interarea transfers 2,530 1,787 1,071
--------- -------- --------
Total $ 27,768 $ 24,821 $ 22,850
Net earnings (loss) 2,271 1,086 (1,695)
Assets at December 31 24,066 25,816 24,566
ASIA PACIFIC
Revenue - Customers $ 13,892 $ 11,365 $ 10,020
Interarea transfers 2,698 1,876 1,452
--------- -------- --------
Total $ 16,590 $ 13,241 $ 11,472
Net earnings (loss) 1,098 567 (443)
Assets at December 31 12,789 12,619 12,778
AMERICAS
Revenue - Customers $ 6,021 $ 5,535 $ 5,214
Interarea transfers 5,333 4,257 3,458
--------- -------- --------
Total $ 11,354 $ 9,792 $ 8,672
Net earnings (loss) 324 498 (251)
Assets at December 31 7,530 7,783 7,359
ELIMINATIONS
Revenue $(21,114) $(14,256) $(13,278)
Net earnings (114) (99) (32)
Assets (2,677) (2,283) (1,923)
CONSOLIDATED
Revenue $ 71,940 $ 64,052 $ 62,716
Net earnings (loss) 4,178 3,021 (7,987)
Assets at December 31 80,292 81,091 81,113
======== ======== ========
Net (loss) before effect of change in accounting for postemployment Benefits.
78
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
<TABLE><CAPTION>
Five-Year Comparison of Selected Financial Data
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
FOR THE YEAR:
Revenue $ 71,940 $ 64,052 $ 62,716 $ 64,523 $ 64,766
Net earnings (loss) before
changes in accounting principles 4,178 3,021 (7,987) (6,865) (598)
Per share of common stock 7.23 5.02 (14.02) (12.03) (1.05)
Effect of accounting changes* - - (114) 1,900 (2,263)
Per share of common stock - - (.20) 3.33 (3.96)
Net earnings (loss) 4,178 3,021 (8,101) (4,965) (2,861)
Per share of common stock 7.23 5.02 (14.22) (8.70) (5.01)
Cash dividends paid on common stock 572 585 905 2,765 2,771
Per share of common stock 1.00 1.00 1.58 4.84 4.84
Investment in plant, rental machines
and other property 4,744 3,078 3,232 4,698 6,502
Return on stockholders' equity 18.5% 14.3%** - - -
AT END OF YEAR:
Total assets $ 80,292 $ 81,091 $ 81,113 $ 86,705 $ 92,473
Net investment in plant, rental machines
and other property 16,579 16,664 17,521 21,595 27,578
Working capital 9,043 12,112 6,052 2,955 7,018
Total debt 21,629 22,118 27,342 29,320 26,947
Stockholders' equity 22,423 23,413 19,738 27,624 36,679
**1993, postemployment benefits; 1992, income taxes; 1991, nonpension postretirement benefits.
**Restated to conform to 1995 presentation. Preferred stock dividends and transaction costs are deducted from net earnings
and preferred stock par value is deducted from stockholders' equity in the calculation.
</TABLE>
<TABLE><CAPTION>
SELECTED QUARTERLY DATA
(DOLLARS IN MILLIONS EXCEPT PER SHARE AND STOCK PRICES)
Net Per Share Common Stock
Gross Earnings Earnings Stock Prices**
Revenue Profit (Loss) (Loss) Dividends High Low
1995
<S> <C> <C> <C> <C> <C> <C>
First quarter $ 15,735 $ 6,664 $ 1,289 $ 2.12 $ .25 $ 85.13 $ 70.25
Second quarter 17,531 7,631 1,716 2.97 .25 99.38 82.25
Third quarter 16,754 6,921 (538) (.96) .25 114.63 91.63
Fourth quarter 21,920 9,151 1,711 3.09 .25 102.38 87.75
--------- -------- --------- -------- --------
Total $ 71,940 $ 30,367 $ 4,178 $ 7.23* $ 1.00
========= ======== ========= ======== ========
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
========= ======== ========= ======== ========
**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.
</TABLE>
79
Exhibit VIII
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 1995 on
Form 10-K, hereby constitutes and appoints Louis V. Gerstner, Jr.,
G. Richard Thoman, Lawrence R. Ricciardi, Jeffrey D. Serkes, John E.
Hickey, and James A. Alic his 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 27th day of February 1996.
/s/ Cathleen Black
------------------------
Cathleen Black
Director
<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 1995 on
Form 10-K, hereby constitutes and appoints Louis V. Gerstner, Jr.,
G. Richard Thoman, Lawrence R. Ricciardi, Jeffrey D. Serkes, John E.
Hickey, and James A. Alic his 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 27th day of February 1996.
/s/ Harold Brown
----------------------
Harold Brown
Director
<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 1995 on
Form 10-K, hereby constitutes and appoints Louis V. Gerstner, Jr.,
G. Richard Thoman, Lawrence R. Ricciardi, Jeffrey D. Serkes, John E.
Hickey, and James A. Alic his 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 27th day of February 1996.
/s/ Juergen Dormann
-------------------------
Juergen Dormann
Director
<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 1995 on
Form 10-K, hereby constitutes and appoints Louis V. Gerstner, Jr.,
G. Richard Thoman, Lawrence R. Ricciardi, Jeffrey D. Serkes, John E.
Hickey, and James A. Alic his 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 27th day of February 1996.
/s/ Louis V. Gerstner, Jr.
--------------------------------
Louis V. Gerstner, Jr.
Chairman and Chief Executive Officer
<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 1995 on
Form 10-K, hereby constitutes and appoints Louis V. Gerstner, Jr.,
G. Richard Thoman, Lawrence R. Ricciardi, Jeffrey D. Serkes, John E.
Hickey, and James A. Alic his 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 27th day of February 1996.
/s/ Nannerl O. Keohane
----------------------------
Nannerl O. Keohane
Director
<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 1995 on
Form 10-K, hereby constitutes and appoints Louis V. Gerstner, Jr.,
G. Richard Thoman, Lawrence R. Ricciardi, Jeffrey D. Serkes, John E.
Hickey, and James A. Alic his 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 27th day of February 1996.
/s/ Charles F. Knight
---------------------------
Charles F. Knight
Director
<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 1995 on
Form 10-K, hereby constitutes and appoints Louis V. Gerstner, Jr.,
G. Richard Thoman, Lawrence R. Ricciardi, Jeffrey D. Serkes, John E.
Hickey, and James A. Alic his 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 27th day of February 1996.
/s/ Lucio A. Noto
-----------------------
Lucio A. Noto
Director
<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 1995 on
Form 10-K, hereby constitutes and appoints Louis V. Gerstner, Jr.,
G. Richard Thoman, Lawrence R. Ricciardi, Jeffrey D. Serkes, John E.
Hickey, and James A. Alic his 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 27th day of February 1996.
/s/ John B. Slaughter
---------------------------
John B. Slaughter
Director
<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 1995 on
Form 10-K, hereby constitutes and appoints Louis V. Gerstner, Jr.,
G. Richard Thoman, Lawrence R. Ricciardi, Jeffrey D. Serkes, John E.
Hickey, and James A. Alic his 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 27th day of February 1996.
/s/ Alex Trotman
----------------------
Alex Trotman
Director
<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 1995 on
Form 10-K, hereby constitutes and appoints Louis V. Gerstner, Jr.,
G. Richard Thoman, Lawrence R. Ricciardi, Jeffrey D. Serkes, John E.
Hickey, and James A. Alic his 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 27th day of February 1996.
/s/ Lodewijk C. van Wachem
---------------------------------
Lodewijk C. van Wachem
Director
<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 1995 on
Form 10-K, hereby constitutes and appoints Louis V. Gerstner, Jr.,
G. Richard Thoman, Lawrence R. Ricciardi, Jeffrey D. Serkes, John E.
Hickey, and James A. Alic his 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 27th day of February 1996.
/s/ Charles M. Vest
-------------------------
Charles M. Vest
Director
<TABLE> <S> <C>
<ARTICLE> 5
EXHIBIT V
FINANCIAL DATA SCHEDULE
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM IBM
CORPORATION'S FINANCIAL STATEMENTS AT AND FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1995 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-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 7,259
<SECURITIES> 442
<RECEIVABLES> 16,450
<ALLOWANCES> 0
<INVENTORY> 6,323
<CURRENT-ASSETS> 40,691
<PP&E> 43,981
<DEPRECIATION> 27,402
<TOTAL-ASSETS> 80,292
<CURRENT-LIABILITIES> 31,648
<BONDS> 0
0
253
<COMMON> 7,447
<OTHER-SE> 14,723
<TOTAL-LIABILITY-AND-EQUITY> 80,292
<SALES> 35,600
<TOTAL-REVENUES> 71,940
<CGS> 21,862
<TOTAL-COSTS> 41,573
<OTHER-EXPENSES> 22,776
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 725
<INCOME-PRETAX> 7,813
<INCOME-TAX> 3,635
<INCOME-CONTINUING> 4,178
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,178
<EPS-PRIMARY> 7.23
<EPS-DILUTED> 7.05
</TABLE>
