UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 1 0 - Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
1-2360
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(Commission file number)
INTERNATIONAL BUSINESS MACHINES CORPORATION
----------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 13-0871985
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(State of incorporation) (IRS employer identification number)
Armonk, New York 10504
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(Address of principal executive offices) (Zip Code)
914-499-1900
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(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section l3 or l5(d) of the Securities Exchange Act of
1934 during the preceding l2 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES |X| NO |_|
------- -------.
The registrant has 972,170,729 shares of common stock outstanding at
September 30, 1997.
<PAGE>
INDEX
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Page
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Part I - Financial Information:
Item 1. Consolidated Financial Statements
Consolidated Statement of Earnings for the three and nine
months ended September 30, 1997 and 1996 . . . . . . . . . . 1
Consolidated Statement of Financial Position at
September 30, 1997 and December 31, 1996 . . . . . . . . . . 2
Consolidated Statement of Cash Flows for the nine months
ended September 30, 1997 and 1996 . . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition . . . . 7
Part II - Other Information . . . . . . . . . . . . . . . . . . . . 15
<PAGE>
ITEM 1. INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
(Dollars in millions except Three Months Ended Nine Months Ended
per share amounts) September 30 September 30
------------------ -----------------
1997 1996 1997 1996
Revenue:
------- ------- ------- -------
Hardware sales $ 8,345 $ 8,372 $24,722 $24,656
Services 4,709 3,932 13,416 10,864
Software 3,039 3,102 9,073 9,334
Maintenance 1,574 1,723 4,809 5,226
Rentals and financing 938 933 2,765 2,724
------- ------- ------- -------
Total revenue 18,605 18,062 54,785 52,804
Cost:
Hardware sales 5,523 5,282 16,326 16,002
Services 3,756 3,219 10,717 8,755
Software 904 986 2,723 2,907
Maintenance 838 904 2,564 2,731
Rentals and financing 486 413 1,364 1,191
------- ------- ------- -------
Total cost 11,507 10,804 33,694 31,586
------- ------- ------- -------
Gross profit 7,098 7,258 21,091 21,218
Operating expenses:
Selling, general and
administrative 3,932 4,175 11,574 11,761
Research, development and
engineering 1,162 1,115 3,452 3,322
Purchased in-process research
and development -- -- -- 435
------- ------- ------- -------
Total operating expenses 5,094 5,290 15,026 15,518
Operating income 2,004 1,968 6,065 5,700
Other income, principally interest 162 183 484 526
Interest expense 183 172 534 526
------- ------- ------- -------
Earnings before income taxes 1,983 1,979 6,015 5,700
Income tax provision 624 694 2,015 2,294
------- ------- ------- -------
Net earnings 1,359 1,285 4,000 3,406
Preferred stock dividends and
transaction costs 5 5 15 15
------- ------- ------- -------
Net earnings applicable to
common shareholders $ 1,354 $ 1,280 $ 3,985 $ 3,391
======= ======= ======= =======
Net earnings per share of
common stock $ 1.38 $ 1.23* $ 4.03 $ 3.18*
Average number of common
shares outstanding (millions) 978.0 1,043.7* 989.4 1,066.7*
Cash dividends per common share $ .20 $ .175* $ .575 $ .475*
* Adjusted to reflect a two-for-one stock split effective May 9, 1997. (The
accompanying notes are an integral part of the financial statements.)
- 1 -
<PAGE>
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(UNAUDITED)
ASSETS
At September 30 At December 31
(Dollars in millions) 1997 1996
--------------- --------------
Current assets:
Cash and cash equivalents $ 5,926 $ 7,687
Marketable securities - at cost, which
approximates market 560 450
Notes and accounts receivable -
net of allowances 16,078 17,446
Sales-type leases receivable 5,663 5,721
Inventories, at lower of average cost or market
Finished goods 1,371 1,413
Work in process 4,498 4,377
Raw materials 112 80
------- -------
Total inventories 5,981 5,870
Prepaid expenses and other current assets 3,982 3,521
------- -------
Total current assets 38,190 40,695
Plant, rental machines and other property 42,030 41,893
Less: Accumulated depreciation 24,109 24,486
------- -------
Plant, rental machines and other property - net 17,921 17,407
Software, less accumulated
amortization (1997, $12,415; 1996, $12,199) 912 1,435
Investments and sundry assets 21,270 21,595
------- -------
Total assets $78,293 $81,132
======= =======
(The accompanying notes are an integral part of the financial statements.)
-2-
<PAGE>
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION - (CONTINUED)
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
(Dollars in millions except At September 30 At December 31
per share amounts) 1997 1996
--------------- --------------
Current liabilities:
Taxes $ 2,241 $ 3,029
Accounts payable and accruals 15,831 18,014
Short-term debt 12,518 12,957
--------- --------
Total current liabilities 30,590 34,000
Long-term debt 13,623 9,872
Other liabilities 12,988 14,005
Deferred income taxes 1,336 1,627
--------- --------
Total liabilities 58,537 59,504
Stockholders' equity:
Preferred stock - par value $.01 per share 253 253
Shares authorized: 150,000,000
Shares issued: 1997 - 2,597,261
1996 - 2,610,711
Common stock - par value $.50 per share 8,758 7,752
Shares authorized: 1,875,000,000
Shares issued: 1997 - 1,035,135,404
1996 - 1,018,141,084*
Retained earnings 14,572 11,189
Translation adjustments 1,281 2,401
Treasury stock - at cost (5,230) (135)
Net unrealized gain on marketable securities 122 168
--------- --------
Total stockholders' equity 19,756 21,628
--------- --------
Total liabilities and stockholders' equity $ 78,293 $ 81,132
========= ========
* Adjusted to reflect a two-for-one stock split on May 9, 1997.
(The accompanying notes are an integral part of the financial statements.)
-3-
<PAGE>
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30:
(UNAUDITED)
(Dollars in millions) 1997 1996
------- -------
Cash flow from operating activities:
Net earnings $ 4,000 $ 3,406
Adjustments to reconcile net earnings to cash
provided from operating activities:
Effect of restructuring charges (317) (1,091)
Depreciation 2,818 2,722
Amortization of software 768 986
Purchased in-process research and development 36 435
Gain on disposition of fixed and other assets (163) (223)
Changes in operating assets and liabilities (2,051) (262)
------- -------
Net cash provided from operating activities 5,091 5,973
------- -------
Cash flow from investing activities:
Payments for plant, rental machines
and other property, net of proceeds (3,875) (2,896)
Investment in software (227) (204)
Purchases of marketable securities and
other investments (1,244) (1,065)
Proceeds from marketable securities and
other investments 910 731
Acquisition of Tivoli Systems, Inc. - net -- (716)
------- -------
Net cash used in investment
activities (4,436) (4,150)
------- -------
Cash flow from financing activities:
Proceeds from new debt 6,969 6,087
Payments to settle debt (2,920) (3,869)
Short-term borrowings less
than 90 days - net (1,274) (314)
Common stock transactions - net (4,476) (3,503)
Cash dividends paid (584) (521)
------- -------
Net cash used in financing activities (2,285) (2,120)
------- -------
Effect of exchange rate changes
on cash and cash equivalents (131) (156)
------- -------
Net change in cash and cash equivalents (1,761) (453)
Cash and cash equivalents at January 1 7,687 7,259
------- -------
Cash and cash equivalents at September 30 $ 5,926 $ 6,806
======= =======
(The accompanying notes are an integral part of the financial statements.)
-4-
<PAGE>
Notes to Consolidated Financial Statements
1. In the opinion of the management of International Business Machines
Corporation (the company), all adjustments necessary to a fair statement of the
results for the unaudited three and nine month periods have been made.
2. Earnings per share amounts were computed by dividing earnings after deduction
of preferred stock dividends by the average number of common shares outstanding.
3. Treasury stock within Stockholders' equity includes 62,964,675 common shares
amounting to $5,230.4 million and 53,800 preferred shares amounting to $1.4
million at September 30, 1997, and 2,179,066 common shares (adjusted to reflect
a two-for-one stock split on May 9, 1997) amounting to $135.2 million at
December 31, 1996.
4. 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, predominately
for the company's European subsidiaries. This regional center principally uses
currency swaps to convert cash flows in a cost-effective manner. The terms of
the swaps are generally less than one year.
Interest and currency rate differentials accruing under interest rate and
currency swap 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. When the terms of the instrument are modified, or
if it ceases to exist for whatever reason, all changes in fair value of the swap
contracts are recognized in income each period until they mature.
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
risks. The terms of these instruments are generally less than one year.
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, expires or is otherwise terminated. At September
30, 1997 and December 31, 1996, 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
-5-
<PAGE>
Notes to Consolidated Financial Statements - (continued)
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 also enters into derivative transactions to moderate the
impact that an appreciation of the dollar relative to other currencies would
have on the translation of foreign earnings. These transactions do not qualify
as hedges for accounting purposes and the transactions have foreign exchange
gains and losses which are recorded in earnings as the earnings occur.
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.
5. A supplemental Consolidated Statement of Earnings schedule has been provided,
for information purposes only, to exclude the effects of the write-offs of
purchased in-process research and development associated with the Tivoli Systems
Inc. and Object Technology International Inc. acquisitions recorded in the first
quarter of 1996. The supplemental statement is shown in exhibit 99 on page 20.
This information is presented voluntarily and is provided solely to assist in
understanding the effects of these items on the Consolidated Statement of
Earnings.
6. On April 29, 1997, the stockholders of the company approved amendments to the
Certificate of Incorporation to increase the number of authorized shares of
common stock from 750 million to 1,875 million, which was required to effect a
two-for-one stock split approved by the company's Board of Directors on January
28, 1997. In addition, the amendments served to reduce the par value of the
common shares from $1.25 to $.50 per share. Common stockholders of record at the
close of business on May 9, 1997 received one additional share for each share
held. All share and per share data presented in the Consolidated Financial
Statements reflect the two-for-one stock split.
7. Subsequent Events: On October 28, 1997, the Board of Directors authorized the
company to repurchase up to an additional $3.5 billion of IBM common shares. The
company plans to buy shares on the open market from time-to-time, depending on
market conditions. Since, January 31, 1995, the company has repurchased
approximately $16 billion of its common stock under a series of earlier Board
authorizations.
Effective November 1, 1997, the company created an employee benefits trust
to which the company will contribute 10 million shares of treasury stock. The
company is authorized to instruct the trustee to sell such shares from time to
time and to use such proceeds from such sales, and any dividends paid or
earnings received on such stock, toward the partial satisfaction of the
company's obligations under certain of its compensation and benefit plans,
including its retiree medical plans. The shares held in trust are not considered
outstanding for earnings purposes until they are committed to be released and
the shares will be voted by the trustee in accordance with its fiduciary duties.
-6-
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997
The company's third quarter results showed a continuation of trends that
had been evident the last several quarters. The company continued to show
strength in services, System/390* servers, commercial PCs, and Lotus Notes* and
Tivoli distributed software. At the same time there was ongoing weakness in
consumer PCs and two of the company's key server products, RS/6000* and AS/400*,
were undergoing product transitions. Currency had a significant adverse impact
on the company's results (approximately $.14 per common share). Despite these
negative factors, the company showed good earnings and constant currency revenue
growth because of its broad and diversified product and services portfolio.
RESULTS OF OPERATIONS
(Dollars in millions) Three Months Ended Nine Months Ended
September 30 September 30
------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- --------
Revenue $ 18,605 $ 18,062 $ 54,785 $ 52,804
Cost 11,507 10,804 33,694 31,586
-------- -------- -------- --------
Gross profit $ 7,098 $ 7,258 $ 21,091 $ 21,218
Gross profit margin 38.2% 40.2% 38.5% 40.2%
Net earnings $ 1,359 $ 1,285 $ 4,000 $ 3,406
The company recorded third quarter 1997 earnings of $1.38 per common
share, compared with $1.23 per common share in the third quarter of last year.
Total revenue as reported increased 3.0 percent over the same period of 1996 to
$18.6 billion and excluding the effects of currency revenue grew approximately 8
percent. The average number of common shares outstanding for the period was
978.0 million in 1997 versus 1,043.7 million in 1996.
Net earnings for the nine months ended September 30, 1997, were $4.03 per
common share, compared with earnings of $3.18 per common share in the first nine
months of 1996. The company's first quarter 1996 results included a charge of
$435 million ($.40 per common share) relating to a non-recurring non-tax
deductible charge for purchased in-process research and development in
connection with the acquisition of Tivoli Systems Inc. ($417 million) and Object
Technology International Inc. ($18 million). Excluding this item, the company's
adjusted earnings per common share would have been $3.59 for the first nine
months of 1996. Total revenue for the nine months ended September 30, 1997, was
up 3.8 percent from the prior year to $54.8 billion. The average number of
common shares outstanding for the period was 989.4 million in 1997 versus
1,066.7 million in 1996.
-7-
<PAGE>
Results of Operations - (continued)
On an as-reported basis, third quarter revenue in the United States was
$8.0 billion, an increase of 8.4 percent from the same period of 1996.
Asia-Pacific revenue grew 7.4 percent to $3.8 billion while revenue from Latin
America was up 9.9 percent to $891 million. Revenue from Europe/ Middle East/
Africa declined 6.3 percent to $5.2 billion and revenue from Canada declined 5.5
percent to $752 million.
Excluding the effects of currency, Asia-Pacific revenue grew approximately
15 percent, while European revenue climbed about 6 percent year-over-year.
Revenue from Canada declined approximately 5 percent on a constant currency
basis.
The company's total gross profit margin was 38.2 percent in the third
quarter of 1997 compared with 40.2 percent in the third quarter of last year.
Total third-quarter expenses declined 3.1 percent, largely as a result of
a 5.8 percent drop in selling, general and administrative expense. Research,
development and engineering expense rose 4.2 percent.
The company's tax rate was 31.5 percent in the third quarter compared with
35.1 percent in the third quarter of last year.
Hardware Sales
(Dollars in millions) Three Months Ended Nine Months Ended
September 30 September 30
------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- --------
Total revenue $ 8,345 $ 8,372 $ 24,722 $ 24,656
Total cost 5,523 5,282 16,326 16,002
-------- -------- -------- --------
Gross profit $ 2,822 $ 3,090 $ 8,396 $ 8,654
Gross profit margin 33.8% 36.9% 34.0% 35.1%
Revenue from hardware sales for the third quarter and first nine months of
1997 was essentially flat, when compared to the same periods in 1996. The
third-quarter and first nine-months revenue was negatively affected by
approximately 4 percentage points from currency in 1997.
Personal computer commercial revenue grew for both the third quarter and
first nine months of 1997, when compared to the same periods of last year.
Personal computer server revenue showed strong growth in all geographies.
Revenue from consumer personal computers was lower in the third quarter and
first nine months of 1997, versus comparable periods of 1996.
-8-
<PAGE>
Results of Operations - (continued)
Revenue from storage products increased on both a third-quarter and
nine-months basis when compared to the same periods in 1996, due to strong sales
of hard disk drives and good growth in open-systems DASD and tape products.
These increases were partially offset by lower high-end DASD revenue, which
which continued to be affected by competitive price pressures.
Semiconductor revenue grew on both a third-quarter and nine-months basis
when compared to the same periods in 1996, as a result of strong growth in S-RAM
and custom logic products, partially offset by lower DRAM revenue.
These increases were offset by a decline in AS/400 and RS/6000 server
revenue both on a third-quarter and nine-months basis, when compared to the same
periods in 1996. These products continued to undergo major product transitions.
System/390 revenue was essentially flat in the third quarter and decreased on a
nine months basis, when compared to last year, while MIPS (millions of
instructions per second) increased approximately 36 percent and 34 percent,
respectively, when compared to the same periods of 1996.
Hardware sales gross profit for the third quarter and first nine months of
1997 decreased 8.7 percent and 3.0 percent, respectively, over comparable
periods in 1996. The decreases were primarily due to the increased proportion of
revenue from personal computers and semiconductor products which carry a lower
gross profit margin than AS/400 servers whose revenue had declined. These mix
effects were partially offset by cost improvements in storage products,
System/390 and semiconductors. In addition, most other hardware products
continued to be affected by competitive pricing pressures.
Services Other Than Maintenance
(Dollars in millions) Three Months Ended Nine Months Ended
September 30 September 30
------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- --------
Total revenue $4,709 $3,932 $13,416 $10,864
Total cost 3,756 3,219 10,717 8,755
------ ------ ------- -------
Gross profit $ 953 $ 713 $ 2,699 $ 2,109
Gross profit margin 20.3% 18.1% 20.1% 19.4%
Services revenue increased 19.7 percent and 23.5 percent, respectively, in
the third quarter and first nine months of 1997, when compared to the same
period of last year. Services revenue was negatively affected by approximately 6
percentage points from currency in the third quarter and first nine months of
1997. The revenue increases were across all categories of services offerings, as
well as in all geographies. Approximately $9 billion in new services contracts
were signed in the quarter.
Services gross profit dollars increased in the third quarter and first
nine months of 1997 by 33.7 percent and 28.0 percent, respectively, when
compared to year-ago periods.
-9-
<PAGE>
Results of Operations - (continued)
Software
(Dollars in millions) Three Months Ended Nine Months Ended
September 30 September 30
------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- --------
Total revenue $ 3,039 $ 3,102 $ 9,073 $ 9,334
Total cost 904 986 2,723 2,907
-------- -------- -------- --------
Gross profit $ 2,135 $ 2,116 $ 6,350 $ 6,427
Gross profit margin 70.3% 68.2% 70.0% 68.9%
Revenue from software for the third quarter and first nine months of 1997
decreased 2.1 percent and 2.8 percent, respectively, over comparable periods in
1996. The third-quarter and first-nine months results were negatively affected
by approximately 7 and 5 percentage points, respectively, from currency in 1997.
The revenue decreases were a result of lower host based computer software
revenue associated with AS/400 and System/390 products. These decreases were
partially offset by revenue growth for distributed software offerings from Lotus
Notes and system management software from Tivoli.
Software gross profit dollars for the third quarter were essentially flat
and decreased 1.2 percent for the first nine months of 1997, versus the same
periods in 1996. Software gross profit margins increased 2.1 percentage points
and 1.1 percentage points, respectively, for the third quarter and first nine
months of 1997, when compared to the same periods of last year. The improvements
in the gross profit margins are the results of lower capitalization rates and
the associated reduction in amortization, partially offset by higher vendor
royalty costs.
Maintenance
(Dollars in millions) Three Months Ended Nine Months Ended
September 30 September 30
------------------- ------------------
1997 1996 1997 1996
-------- -------- -------- -------
Total revenue $ 1,574 $ 1,723 $ 4,809 $ 5,226
Total cost 838 904 2,564 2,731
-------- -------- -------- -------
Gross profit $ 736 $ 819 $ 2,245 $ 2,495
Gross profit margin 46.8% 47.5% 46.7% 47.7%
Maintenance revenue for the third quarter and first nine months of 1997
decreased 8.7 percent and 8.0 percent, respectively, over comparable periods in
1996. The third-quarter and first nine-months revenue was negatively affected by
approximately 6 and 5 percentage points, respectively, from currency in 1997.
Maintenance gross profit dollars decreased 10.1 percent and 10.0 percent,
respectively, in the third quarter and first nine months of 1997, when compared
to the same periods of 1996. Maintenance revenue and gross profit continued to
be affected by price reductions on maintenance offerings.
-10-
<PAGE>
Results of Operations - (continued)
Rentals and financing
(Dollars in millions) Three Months Ended Nine Months Ended
September 30 September 30
------------------- ------------------
1997 1996 1997 1996
-------- -------- -------- -------
Total revenue $ 938 $ 933 $ 2,765 $ 2,724
Total cost 486 413 1,364 1,191
-------- -------- -------- -------
Gross profit $ 452 $ 520 $ 1,401 $ 1,533
Gross profit margin 48.2% 55.8% 50.7% 56.3%
Revenue from rentals and financing for the third quarter was essentially
flat and increased 1.5 percent for the first nine months of 1997, respectively,
versus comparable periods in 1996. The third-quarter and first nine-months
revenue was negatively affected by approximately 4 percentage points from
currency in 1997. The increases in revenue were primarily due to higher
operating lease activity, offset by decreased dealer financing in 1997 versus
the same periods in 1996.
Rentals and financing gross profit dollars decreased 13.1 percent and 8.6
percent, respectively, for the third quarter and first nine months of 1997, when
compared to the same periods of the prior year. The decline in gross profit
dollars and margin were principally due to a trend towards financing a greater
amount of low-end products and faster growth in the more competitive U.S.
market.
Expenses
(Dollars in millions) Three Months Ended Nine Months Ended
September 30 September 30
------------------- ------------------
1997 1996 1997 1996
-------- -------- -------- -------
Selling, general and
administrative $ 3,932 $ 4,175 $ 11,574 $11,761
Percentage of revenue 21.1% 23.1% 21.1% 22.3%
Research, development and
engineering $ 1,162 $ 1,115 $ 3,452 $ 3,322
Percentage of revenue 6.2% 6.2% 6.3% 6.3%
Selling, general and administrative expense for the third quarter and
first nine months of 1997 decreased 5.8 percent and 1.6 percent, respectively,
from the same periods in 1996. Currency had a benefit of about 4 percentage
points for the third quarter and first nine months of 1997 versus the same
periods in 1996. The company continues to invest in more variable based
programs, such as advertising, business partner programs, expenditures
associated with new acquisitions, while continuing to focus on reducing fixed
infrastructure costs.
-11-
<PAGE>
Results of Operations - (continued)
Research, development and engineering expense increased 4.2 percent and
3.9 percent, respectively, for the third quarter and first nine months of 1997,
when compared to the same periods of 1996. These increases were primarily due to
continued investment to support the company's network computing solutions within
the company's industry-specific business units and investment in new
technologies for future products.
The first nine-months 1996 results included a non-tax deductible charge of
$435 million for purchased-in process research and development expense
associated with the acquisition of Tivoli Systems, Inc. and Object Technology
International, Inc. in the first quarter of 1996. This amount has been
separately identified on the company's Consolidated Statement of Earnings.
Interest on total borrowings of the company and its subsidiaries, which
included interest expense and interest costs associated with rentals and
financing, amounted to $407 million and $1,175 million for the third quarter and
first nine months of 1997, respectively. Of these amounts, $10 million for the
third quarter and $26 million for the first nine months were capitalized.
The effective tax rate for the quarter ended September 30, 1997, was 31.5
percent, versus 35.1 percent for the same period in 1996. The decrease is
primarily the result of the mix of earnings and corresponding weighting of tax
rates on a country-by-country basis. The company performs assessments of the
realizability of its net deferred tax assets on a regular basis.
The effective tax rate for the first nine months of 1997 was 33.5 percent,
versus 40.3 percent for the same period in 1996. The decrease was partially a
result of the $435 million charge associated with Tivoli Systems Inc. and Object
Technology Inc. acquisitions in the first quarter of 1996 that did not give rise
to a tax benefit. Excluding this charge, the effective tax rate for the first
nine months of 1996 would have been 37.4 percent. The additional decrease in the
nine months effective tax rate was primarily the result of the mix of earnings
and corresponding weighting of tax rates on a country-by-country basis.
Financial Condition
During 1997, the company has continued to make significant investments to
fund its future growth and increase shareholder value, including expenditures of
$4.5 billion for plant, rental machines and other property, $3.5 billion for
research, development and engineering and $5.2 billion for the repurchase of the
company's common shares. The company had $6.5 billion in cash, cash equivalents
and marketable securities on hand at September 30, 1997.
-12-
<PAGE>
Financial Condition - (continued)
Cash Flow
(Dollars in millions) Nine Months Ended
September 30
------------------
1997 1996
------- -------
Net cash provided from (used in):
Operating activities $ 5,091 $ 5,973
Investing activities (4,436) (4,150)
Financing activities (2,285) (2,120)
Effect of exchange rate changes
on cash and cash equivalents (131) (156)
------- -------
Net change in cash and cash equivalents $(1,761) $ (453)
Working Capital
(Dollars in millions) At September 30 At December 31
1997 1996
--------------- --------------
Current assets $ 38,190 $ 40,695
Current liabilities 30,590 34,000
-------- --------
Working capital $ 7,600 $ 6,695
Current ratio 1.25:1 1.20:1
The company's current ratio improved to 1.25:1. Current assets declined
$2.5 billion from year-end 1996 with declines of $1.7 billion in cash, cash
equivalents, and marketable securities and $1.4 billion in accounts receivable,
offset by increases of $.5 billion in prepaid expenses and a slight increase in
inventories. The decrease in cash, cash equivalents and marketable securities
results primarily from the stock repurchases and capital expenditures, offset by
cash generated from operations and debt financing. The decline in accounts
receivable was attributable to the collection of traditionally higher year-end
accounts receivable balances, while prepaid expenses reflects a seasonal
increase from year-end levels.
Current liabilities declined $3.4, billion with declines of $3.0 billion
in accruals, taxes and accounts payable (resulting primarily from seasonal
declines in these balances from their normally higher year-end levels), and $.4
billion in short-term debt.
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<PAGE>
Financial Condition - (continued)
Investments
The company's capital expenditures for plant, rental machines and other
property were $4.5 billion for the nine-months ended September 30, 1997, an
increase of $.7 billion from the comparable 1996 period. This increase reflects
the company's continued investment in its rapidly growing outsourcing business,
as well as in the areas of storage products and microelectronics.
In addition to software development expense included in research,
development and engineering expense, the company capitalized $.2 billion of
software costs during the first nine months of both 1997 and 1996. Amortization
of capitalized software costs amounted to $.8 billion during the nine-months
ended September 30, 1997, a decline of $.2 billion from the comparable 1996
period.
Other Non-Current Liabilities
Other non-current liabilities of $13.0 billion at September 30, 1997,
declined $1.0 billion from year-end 1996 primarily due to reductions in
restructuring accrual balances related to pre-1996 restructuring programs, and
in non-U.S. retirement reserves.
Debt and Equity
(Dollars in millions) At September 30 At December 31
1997 1996
--------------- --------------
"Core" debt $ 2,727 $ 2,202
Customer financing debt 23,414 20,627
------- -------
Total debt $26,141 $22,829
Stockholders' equity $19,756 $21,628
Debt/capitalization 57.0% 51.4%
Customer financing debt/equity 6.4:1 6.3:1
Total debt increased $3.3 billion from year-end 1996 as debt in support of
customer financing increased $2.8 billion, and "core" debt increased $.5
billion. Stockholders' equity declined $1.9 billion from December 31, 1996 as
the increase in the company's retained earnings was more than offset by the
common share repurchases and the currency effect of the stronger U.S. dollar on
the company's foreign net assets.
Liquidity
The company maintains a $10.0 billion committed global credit facility as
part of its ongoing efforts to ensure appropriate levels of liquidity. As of
September 30, 1997, $9.2 billion of this confirmed line of credit remains unused
and available for future use.
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<PAGE>
Financial Condition - (continued)
On July 30, 1997, the company issued $500 million of 6.45 percent Notes
due August 1, 2007, and $500 million of 6.22 percent Debentures due August 1,
2027. The net proceeds of these offerings were used for general corporate
purposes.
At September 30, 1997, the company had a net balance of $1.0 billion in
assets under management from the securitization of lease and trade receivables.
Forward Looking and Cautionary Statements
Except for the historical information and discussions contained herein,
statements contained in this Form 10-Q may constitute 'forward looking
statements' within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements involve a number of risks, uncertainties and other
factors that could cause actual results to differ materially, including the
company's failure to continue to develop and market new and innovative products
and services and to keep pace with technological change; competitive pressures;
failure to obtain or protect intellectual property rights; the company's ability
to attract and retain key personnel; currency and customer financing risks;
dependence on certain suppliers; changes in the financial or business condition
of the company's distributors or resellers; the company's ability to
successfully manage acquisitions and alliances; legal, political and economic
changes and other risks, uncertainties and factors discussed in the company's
other filings with the Securities and Exchange Commission, including its Form
8-K filed on July 21, 1997.
Part II - Other Information
ITEM 6 (a). Exhibits
Exhibit Number
3 By-laws of IBM as amended through July 29, 1997.
11 Statement re: computation of per share earnings.
12 Statement re: computation of ratios.
99 Consolidated Statement of Earnings Supplemental Schedule.
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<PAGE>
Other Information - (continued)
ITEM 6 (b). Reports on Form 8-K
A Form 8-K dated July 21, 1997, was filed with respect to the company's
financial results for the period ended June 30, 1997, and included unaudited
consolidated financial statements for the period ended June 30, 1997.
A Form 8-K dated August 1, 1997, was filed to incorporate by reference
into Registration Statement No. 333-21073 on Form S-3, effective March 16, 1997,
the Underwriting Agreement dated July 30, 1997, among International Business
Machines Corporation, Morgan Stanley & Co. Incorporated, Bear Stearns & Co.
Inc., Goldman, Sachs & Co., Lehman Brothers Inc., Merrill Lynch, Pierce, Fenner
& Smith Incorporated and Salomon Brothers Inc. In addition, the Form of the $500
million 6.45 percent Notes due 2007 and the Form of the $500 million 6.22
percent Debentures due 2027 were incorporated by reference into Registration
statement No. 333-21073 on Form S-3, effective March 16, 1997, and were a part
of this Form 8-K. No financial statements were filed with the Form 8-K.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
International Business Machines Corporation
-------------------------------------------
(Registrant)
Date: November 10, 1997
-----------------------
By:
John R. Joyce
-------------------------------------------
John R. Joyce
Vice President and Controller
*System/390, AS/400 and RS/6000 are trademarks or registered trademarks of
the International Business Machines Corporation. Lotus Notes is a trademark of
Lotus Development Corporation.
-16-
BY-LAWS
of
INTERNATIONAL BUSINESS MACHINES CORPORATION
Adopted April 29, 1958
As Amended Through
July 29, 1997
[July 29, 1997]
<PAGE>
TABLE OF CONTENTS
ARTICLE I PAGE
Definitions ......................................... 1
ARTICLE II
MEETINGS OF STOCKHOLDERS
SEC. 1 Place of Meetings ....................... 1
SEC. 2 Annual Meetings ......................... 1
SEC. 3 Special Meetings ........................ 2
SEC. 4 Notice of Meetings ...................... 2
SEC. 5 Quorum .................................. 2
SEC. 6 Organization ............................ 3
SEC. 7 Items of Business ....................... 3
SEC. 8 Voting .................................. 3
SEC. 9 List of Stockholders .................... 4
SEC. 10 Inspectors of Election .................. 4
ARTICLE III
BOARD OF DIRECTORS
SEC. 1 General Powers .......................... 5
SEC. 2 Number; Qualifications;
Election; Term of
Office ................................. 5
SEC. 3 Place of Meetings ....................... 5
SEC. 4 First Meeting ........................... 5
SEC. 5 Regular Meetings ........................ 5
SEC. 6 Special Meetings ........................ 5
SEC. 7 Notice of Meetings ...................... 5
SEC. 8 Quorum and Manner of
Acting ................................. 6
SEC. 9 Organization ............................ 6
SEC. 10 Resignations ............................ 6
SEC. 11 Vacancies ............................... 6
SEC. 12 Retirement of
Directors .............................. 6
[July 29, 1997] -i-
<PAGE>
ARTICLE IV
EXECUTIVE AND OTHER COMMITTEES
SEC. 1 Executive Committee ..................... 7
SEC. 2 Powers of the Executive
Committee .............................. 7
SEC. 3 Meetings of the Executive
Committee .............................. 7
SEC. 4 Quorum and Manner of
Acting of the Executive
Committee .............................. 8
SEC. 5 Other Committees ........................ 8
SEC. 6 Changes in Committees;
Resignations; Removals;
Vacancies ............................. 9
ARTICLE V
OFFICERS
SEC. 1 Number and Qualifications.. ............. 9
SEC. 2 Resignations ............................ 9
SEC. 3 Removal ................................. 10
SEC. 4 Vacancies ............................... 10
SEC. 5 Chairman of the Board ................... 10
SEC. 6 Vice Chairman of the
Board .................................. 10
SEC. 7 President ............................... 10
SEC. 8 Designated Officers ..................... 11
SEC. 9 Executive Vice
Presidents, Senior Vice
Presidents and Vice
Presidents ............................. 11
SEC. 10 Treasurer ............................... 11
SEC. 11 Secretary ............................... 12
SEC. 12 Controller .............................. 13
SEC. 13 Compensation ............................ 13
ARTICLE VI
CONTRACTS, CHECKS, DRAFTS,
BANK ACCOUNTS, ETC
SEC. 1 Execution of Contracts .................. 13
SEC. 2 Loans ................................... 13
SEC. 3 Checks, Drafts, etc ..................... 14
SEC. 4 Deposits ................................ 14
SEC. 5 General and Special Bank
Accounts ............................... 14
SEC. 6 Indemnification ......................... 14
[July 29, 1997] -ii-
<PAGE>
ARTICLE VII
SHARES
SEC. 1 Stock Certificates ...................... 15
SEC. 2 Books of Account and
Record of
Stockholders ........................... 15
SEC. 3 Transfers of Stock ...................... 15
SEC. 4 Regulations ............................. 16
SEC. 5 Fixing of Record Date ................... 16
SEC. 6 Lost, Destroyed or Mutilated
Certificates ........................... 16
SEC. 7 Inspection of Records ................... 17
SEC. 8 Auditors ................................ 17
ARTICLE VIII
OFFICES
SEC. 1 Principal Office ........................ 17
SEC. 2 Other Offices ........................... 17
ARTICLE IX
Waiver of Notice .................................... 17
ARTICLE X
Fiscal Year ......................................... 18
ARTICLE XI
Seal ................................................ 18
ARTICLE XII
Amendments .......................................... 18
[July 29, 1997] -iii-
<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
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<PAGE>
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.
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 th e Secretary a
written request that notices be mailed to some other address, it shall be mailed
to the address designated in such request. Nevertheless, notice of any meeting
of the stockholders shall not be required to be given to any stockholder who
shall waive notice thereof as hereinafter provided in Article IX of these
By-laws. Except when expressly required by law, notice of any adjourned meeting
of the stockholders need not be given nor shall publication of notice of any
annual or special meeting thereof be required.
SECTION 5. Quorum. Except as otherwise provided by law, at all meetings of
the stockholders, the presence of holders of record of a majority of the
outstanding shares of stock of the Corporation having voting power, in person or
represented by proxy and entitled to vote thereat, shall be necessary to
constitute a quorum for the transaction of business. In the absence of a quorum
at any such meeting or any adjournment or adjournments thereof, a majority in
voting interest of those present in person or represented by proxy and entitled
to vote thereat, or, in the absence of all the stockholders, any officer
entitled to preside at, or to act as secretary of, such meeting, may adjourn
such meeting from time to time without further notice, other than by
announcement at the meeting at which such adjournment shall be taken, until a
quorum shall be present thereat. At any adjourned meeting at which a quorum
shall be present any business may be transacted which might have been transacted
at the meeting as originally called.
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<PAGE>
SECTION 6. Organization. At each meeting of the stockholders, the Chairman
of the Board, or in the absence of the Chairman of the Board, the President, or
in the absence of the Chairman of the Board and the President, a Vice Chairman
of the Board, or if the Chairman of the Board, the President, and all Vice
Chairmen of the Board shall be absent therefrom, an Executive Vice President, or
if the Chairman of the Board, the President, all Vice Chairmen of the Board and
all Executive Vice Presidents shall be absent therefrom, a Senior Vice President
shall act as chairman. The Secretary, or, if the Secretary shall be absent from
such meeting or unable to act, the person whom the Chairman of such meeting
shall appoint secretary of such meeting shall act as secretary of such meeting
and keep the minutes thereof.
SECTION 7. Items of Business. The items of business at all meetings of the
stockholders shall be, insofar as applicable, as follows:
-- Call to order.
-- Proof of notice of meeting or of waiver thereof.
-- Appointment of inspectors of election, if necessary.
-- A quorum being present.
-- Reports.
-- Election of directors.
-- Other business specified in the notice of the meeting.
-- Voting.
-- Adjournment.
Any items of business not referred to in the foregoing may be taken up at
the meeting as the chairman of the meeting shall determine. The chairman of the
meeting shall determine all matters relating to the efficient conduct of the
meeting, including but not limited to the maintenance of order and decorum.
SECTION 8. Voting. Except as otherwise provided by law, each holder of
record of shares of stock of the Corporation having voting power shall be
entitled at each meeting of the stockholders to one vote for every share of such
stock standing in the stockholder's name on the record of stockholders of the
Corporation:
(a) on the date fixed pursuant to the provisions of Section 5 of Article
VII of these By-laws as the record date for the determination of the
stockholders who shall be entitled to vote at such meeting, or
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<PAGE>
(b) if such record date shall not have been so fixed, then at the close of
business on the day next preceding the day on which notice of such meeting shall
have been given, or
(c) if such record date shall not have been so fixed and if no notice of
such meeting shall have been given, then at the time of the call to order of
such meeting.
Any vote on stock of the Corporation at any meeting of the stockholders
may be given by the stockholder of record entitled thereto in person or by proxy
appointed by an instrument in writing, subscribed by such stockholder or by the
stockholder's attorney thereunto duly authorized and delivered to the secretary
of such meeting at or prior to the time designated in the order of business for
turning in proxies. At all meetings of the stockholders at which a quorum shall
be present, all matters (except where otherwise provided by law, the Certificate
of Incorporation or these By-laws) shall be decided by the vote of a majority in
voting interest of the stockholders present in person or represented by proxy
and entitled to vote thereat. Unless required by law, or determined by the
chairman of the meeting to be advisable, the vote on any question need not be by
ballot. On a vote by ballot, each ballot shall be signed by the stockholder
voting, or by the stockholder's proxy as such, if there be such proxy.
SECTION 9. List of Stockholders. A list, certified by the Secretary, of
the stockholders of the Corporation entitled to vote shall be produced at any
meeting of the stockholders upon the request of any stockholder of the
Corporation pursuant to the provisions of applicable law, the Certificate of
Incorporation or these By-laws.
SECTION 10. Inspectors of Election. Prior to the holding of each annual or
special meeting of the stockholders, two inspectors of election to serve thereat
shall be appointed by the Board, or, if the Board shall not have made such
appointment, by the Chairman of the Board. If there shall be a failure to
appoint inspectors, or if, at any such meeting, any inspector so appointed shall
be absent or shall fail to act or the office shall become vacant, the chairman
of the meeting may, and at the request of a stockholder present in person and
entitled to vote at such meeting shall, appoint such inspector or inspectors of
election, as the case may be, to act thereat. The inspectors of election so
appointed to act at any meeting of the stockholders, before entering upon the
discharge of their duties, shall be sworn faithfully to execute the duties of
inspectors at such meeting, with strict impartiality and according to the best
of their ability, and the oath so taken shall be subscribed by them. Such
inspectors of election shall take charge of the polls, and, after the voting on
any question, shall make a certificate of the results of the vote taken. No
director or candidate for the office of director shall act as an inspector of an
election of directors. Inspectors need not be stockholders.
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<PAGE>
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. General Powers. The business and affairs of the Corporation
shall be managed by the Board. The Board may exercise all such authority and
powers of the Corporation and do all such lawful acts and things as are not by
law, the Certificate of Incorporation or these By-laws, directed or required to
be exercised or done by the stockholders.
SECTION 2. Number; Qualifications; Election; Term of Office. The number of
directors of the Corporation shall be 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 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
-5-
<PAGE>
time at which such meeting is to be held. Notice of any such meeting need not be
given to any director who shall waive notice thereof as provided in Article IX
of these By-laws. Any meeting of the Board shall be a legal meeting without
notice thereof having been given, if all the directors of the Corporation then
holding office shall be present thereat.
SECTION 8. Quorum and Manner of Acting. A majority of the Board shall be
present in person at any meeting of the Board in order to constitute a quorum
for the transaction of business at such meeting. Participation in a meeting by
means of a conference telephone or similar communications equipment allowing all
persons participating in the meeting to hear each other shall constitute
presence in person at a meeting. Except as otherwise expressly required by law
or the Certificate of Incorporation and except also as specified in Section 1,
Section 5, and Section 6 of Article IV, in Section 3 of Article V and in Article
XII of these By-laws, the act of a majority of the directors present at any
meeting at which a quorum is present shall be the act of the Board. In the
absence of a quorum at any meeting of the Board, a majority of the directors
present thereat may adjourn such meeting from time to time until a quorum shall
be present thereat. Notice of any adjourned meeting need not be given. At any
adjourned meeting at which a quorum is present, any business may be transacted
which might have been transacted at the meeting as originally called. The
directors shall act only as a Board and the individual directors shall have no
power as such.
SECTION 9. Organization. At each meeting of the Board, the Chairman of the
Board, or in the case of the Chairman's absence therefrom, the President, or in
the case of the President's absence therefrom, a Vice Chairman, or in the case
of the absence of all such persons, another director chosen by a majority of
directors present, shall act as chairman of the meeting and preside thereat. The
Secretary, or if the Secretary shall be absent from such meeting, any person
appointed by the chairman, shall act as secretary of the meeting and keep the
minutes thereof.
SECTION 10. Resignations. Any director of the Corporation may resign at
any time by giving written notice of resignation to the Board or the Chairman of
the Board or the Secretary. Any such resignation shall take effect at the time
specified therein, or if the time when it shall become effective shall not be
specified therein, then it shall take effect immediately upon its receipt; and
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
SECTION 11. Vacancies. Any vacancy in the Board, whether arising from
death, resignation, an increase in the number of directors or any other cause,
may be filled by the Board.
SECTION 12. Retirement of Directors. The Board may prescribe a retirement
policy for directors on or after reaching a certain age, provided, however, that
such
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<PAGE>
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,
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<PAGE>
of which regular meetings notice need not be given, or as shall be fixed by the
Chairman of the Executive Committee or in the absence of the Chairman of the
Executive Committee the Chief Executive Officer and specified in the notice of
such meeting. Special meetings of the Executive Committee may be called by the
Chairman of the Executive Committee or by the Chief Executive Officer. Notice of
each such special meeting of the Executive Committee (and of each regular
meeting for which notice shall be required), stating the time and place thereof
shall be mailed, postage prepaid, to each member of the Executive Committee, by
first-class mail, at least four days before the day on which such meeting is to
be held, or shall be sent by facsimile transmission or comparable medium, or be
delivered personally or by telephone, at least twenty-four hours before the time
at which such meeting is to be held; but notice need not be given to a member of
the Executive Committee who shall waive notice thereof as provided in Article IX
of these By-laws, and any meeting of the Executive Committee shall be a legal
meeting without any notice thereof having been given, if all the members of such
Committee shall be present thereat.
SECTION 4. Quorum and Manner of Acting of the Executive Committee. Four
members of the Executive Committee shall constitute a quorum for the transaction
of business, and the act of a majority of the members of the Executive Committee
present at a meeting at which a quorum shall be present shall be the act of the
Executive Committee. Participating in a meeting by means of a conference
telephone or similar communications equipment allowing all persons participating
in the meeting to hear each other shall constitute presence at a meeting of the
Executive Committee. The members of the Executive Committee shall act only as a
committee and individual members shall have no power as such.
SECTION 5. Other Committees. The Board may, by resolution adopted by a
majority of the Board, designate members of the Board to constitute other
committees, which shall have, and may exercise, such powers as the Board may by
resolution delegate to them, and shall in each case consist of such number of
directors as the Board may determine; provided, however, that each such
committee shall have at least three directors as members thereof. Such a
committee may either be constituted for a specified term or may be constituted
as a standing committee which does not require annual or periodic
reconstitution. A majority of all the members of any such committee may
determine its action and its quorum requirements and may fix the time and place
of its meetings, unless the Board shall otherwise provide. Participating in a
meeting by means of a conference telephone or similar communications equipment
allowing all persons participating in the meeting to hear each other shall
constitute presence at a meeting of such other committees.
In addition to the foregoing, the Board may, by resolution adopted by a
majority of the Board, create a committee of indeterminate membership and
duration and not subject to the limitations as to the membership, quorum and
manner of meeting and acting prescribed in these By-laws, which committee, in
the event of a major disaster or catastrophe or national emergency which renders
the Board
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<PAGE>
incapable of action by reason of the death, physical incapacity or inability to
meet of some or all of its members, shall have, and may exercise all the powers
of the Board in the management of the business and affairs of the Corporation
(including, without limitation, the power to authorize the seal of the
Corporation to be affixed to all papers which may require it and the power to
fill vacancies in the Board). An act of such committee taken within the scope of
its authority shall be an act of the Board.
SECTION 6. Changes in Committees; Resignations; Removals; Vacancies. The
Board shall have power, by resolution adopted by a majority of the Board, at any
time to change or remove the members of, to fill vacancies in, and to discharge
any committee created pursuant to these By-laws, either with or without cause.
Any member of any such committee may resign at any time by giving written notice
to the Board or the Chairman of the Board or the Secretary. Such resignation
shall take effect upon receipt of such notice or at any later time specified
therein; and, unless otherwise specified therein, acceptance of such resignation
shall not be necessary to make it effective. Any vacancy in any committee,
whether arising from death, resignation, an increase in the number of committee
members or any other cause, shall be filled by the Board in the manner
prescribed in these By-laws for the original appointment of the members of such
committee.
ARTICLE V
OFFICERS
SECTION 1. Number and Qualifications. The officers of the Corporation
shall include the Chairman of the Board, and may include one or more Vice
Chairmen of the Board, the President, one or more Vice Presidents (one or more
of whom may be designated as Executive Vice Presidents or as Senior Vice
Presidents or by other designations), the Treasurer, the Secretary and the
Controller. Officers shall be elected from time to time by the Board, each to
hold office until a successor shall have been duly elected and shall have
qualified, or until death, or until resignation as hereinafter provided in
Section 2 of this Article V, or until removed as hereinafter provided in Section
3 of this Article V.
SECTION 2. Resignations. Any officer of the Corporation may resign at any
time by giving written notice of resignation to the Board, the Chairman of the
Board, the Chief Executive Officer or the Secretary. Any such resignation shall
take effect at the time specified therein, or, if the time when it shall become
effective shall not be specified therein, then it shall become effective upon
its receipt; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
-9-
<PAGE>
SECTION 3. Removal. Any officer of the Corporation may be removed, either
with or without cause, at any time, by a resolution adopted by a majority of the
Board at any meeting of the Board.
SECTION 4. Vacancies. A vacancy in any office, whether arising from death,
resignation, removal or any other cause, may be filled for the unexpired portion
of the term of office which shall be vacant, in the manner prescribed in these
By-laws for the regular election or appointment to such office.
SECTION 5. Chairman of the Board. The Chairman of the Board shall, if
present, preside at each meeting of the stockholders and of the Board and shall
perform such other duties as may from time to time be assigned by the Board. The
Chairman may sign certificates representing shares of the stock of the
Corporation pursuant to the provisions of Section 1 of Article VII of these
By-laws; sign, execute and deliver in the name of the Corporation all deeds,
mortgages, bonds, contracts or other instruments authorized by the Board, except
in cases where the signing, execution or delivery thereof shall be expressly
delegated by the Board or these By-laws to some other officer or agent of the
Corporation or where they shall be required by law otherwise to be signed,
executed and delivered; and affix the seal of the Corporation to any instrument
which shall require it. The Chairman of the Board, when there is no President or
in the absence or incapacity of the President, shall perform all the duties and
functions and exercise all the powers of the President.
SECTION 6. Vice Chairman of the Board. Each Vice Chairman of the Board
shall assist the Chairman of the Board and have such other duties as may be
assigned by the Board or the Chairman of the Board. The Vice Chairman may sign
certificates representing shares of the stock of the Corporation pursuant to the
provisions of Section 1 of Article VII of these By-laws; sign, execute and
deliver in the name of the Corporation all deeds, mortgages, bonds, contracts or
other instruments authorized by the Board, except in cases where the signing,
execution or delivery thereof shall be expressly delegated by the Board or these
By-laws to some officer or agent of the Corporation or where they shall be
required by law otherwise to be signed, executed and delivered; and affix the
seal of the Corporation to any instrument which shall require it.
SECTION 7. President. The President shall perform all such duties as from
time to time may be assigned by the Board or the Chairman of the Board. The
President may sign certificates representing shares of the stock of the
Corporation pursuant to the provisions of Section 1 of Article VII of these
By-laws; sign, execute and deliver in the name of the Corporation all deeds
mortgages, bonds, contracts or other instruments authorized by the Board, except
in cases where the signing, execution or delivery thereof shall be expressly
delegated by the Board or these By-laws to some other officer or agent of the
Corporation or where they shall be required by law otherwise to be signed,
executed and delivered, and affix the seal of the Corporation to any instrument
which shall require it; and, in general, perform all duties incident to the
office of President. The President shall in the absence or incapacity of the
Chairman of the Board, perform all the duties and functions
-10-
<PAGE>
and exercise all the powers of the Chairman of the Board.
SECTION 8. Designated Officers. (a) Chief Executive Officer. Either the
Chairman of the Board, or the President, as the Board of Directors may
designate, shall be the Chief Executive Officer of the Corporation. The officer
so designated shall have, in addition to the powers and duties applicable to the
office set forth in Section 5 or 7 of this Article V, general and active
supervision over the business and affairs of the Corporation and over its
several officers, agents, and employees, subject, however, to the control of the
Board. The Chief Executive Officer shall see that all orders and resolutions of
the Board are carried into effect, be an ex officio member of all committees of
the Board (except the Audit Committee, the Directors and Corporate Governance
Committee, and committees specifically empowered to fix or approve the Chief
Executive Officer's compensation or to grant or administer bonus, option or
other similar plans in which the Chief Executive Officer is eligible to
participate), and, in general, shall perform all duties incident to the position
of Chief Executive Officer and such other duties as may from time to time be
assigned by the Board. (b) Other Designated Officers. The Board of Directors may
designate officers to serve as Chief Financial Officer, Chief Accounting Officer
and other such designated positions and to fulfill the responsibilities of such
designated positions in addition to their duties as officers as set forth in
this Article V.
SECTION 9. Executive Vice Presidents, Senior Vice Presidents and Vice
Presidents. Each Executive and Senior Vice President shall perform all such
duties as from time to time may be assigned by the Board or the Chairman of the
Board or a Vice Chairman of the Board or the President. Each Vice President
shall perform all such duties as from time to time may be assigned by the Board
or the Chairman of the Board or a Vice Chairman of the Board or the President or
an Executive or a Senior Vice President. Any Vice President may sign
certificates representing shares of stock of the Corporation pursuant to the
provisions of Section 1 of Article VII of these By-laws.
SECTION 10. Treasurer. The Treasurer shall:
(a) have charge and custody of, and be responsible for, all the funds and
securities of the Corporation, and may invest the same in any securities, may
open, maintain and close accounts for effecting any and all purchase, sale,
investment and lending transactions in securities of any and all kinds for and
on behalf of the Corporation or any employee pension or benefit plan fund or
other fund established by the Corporation, as may be permitted by law;
(b) keep full and accurate accounts of receipts and disbursements in books
belonging to the Corporation;
-11-
<PAGE>
(c) deposit all moneys and other valuables to the credit of the
Corporation in such depositaries as may be designated by the Board or the
Executive Committee;
(d) receive, and give receipts for, moneys due and payable to the
Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the investment of
its funds, taking proper vouchers therefor;
(f) render to the Board, whenever the Board may require, an account of all
transactions as Treasurer; and
(g) in general, perform all the duties incident to the office of Treasurer
and such other duties as from time to time may be assigned by the Board or the
Chairman of the Board or a Vice Chairman of the Board or the President or an
Executive or Senior Vice President.
SECTION 11. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board, the Executive Committee and
other committees of the Board and the stockholders;
(b) see that all notices are duly given in accordance with the provisions
of these By-laws and as required by law;
(c) be custodian of the records and the seal of the Corporation and affix
and attest the seal to all stock certificates of the Corporation and affix and
attest the seal to all other documents to be executed on behalf of the
Corporation under its seal;
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly kept and
filed; and
(e) in general, perform all the duties incident to the office of Secretary
and such other duties as from time to time may be assigned by the Board or the
Chairman of the Board or a Vice Chairman of the Board or the President or an
Executive or Senior Vice President.
-12-
<PAGE>
SECTION 12. Controller. The Controller shall:
(a) have control of all the books of account of the Corporation;
(b) keep a true and accurate record of all property owned by it, of its
debts and of its revenues and expenses;
(c) keep all accounting records of the Corporation (other than the
accounts of receipts and disbursements and those relating to the deposits of
money and other valuables of the Corporation, which shall be kept by the
Treasurer);
(d) render to the Board, whenever the Board may require, an account of the
financial condition of the Corporation; and
(e) in general, perform all the duties incident to the office of
Controller and such other duties as from time to time may be assigned by the
Board or the Chairman of the Board or a Vice Chairman of the Board or the
President or an Executive or Senior Vice President.
SECTION 13. Compensation. The compensation of the officers of the
Corporation shall be fixed from time to time by the Board; provided, however,
that the Board may delegate to a committee the power to fix or approve the
compensation of any officers. An officer of the Corporation shall not be
prevented from receiving compensation by reason of being also a director of the
Corporation; but any such officer who shall also be a director shall not have
any vote in the determination of the amount of compensation paid to such
officer.
ARTICLE VI
CONTRACTS, CHECKS, DRAFTS,
BANK ACCOUNTS, ETC.
SECTION 1. Execution of Contracts. Except as otherwise required by law or
these By-laws, any contract or other instrument may be executed and delivered in
the name and on behalf of the Corporation by any officer (including any
assistant officer) of the Corporation. The Board or the Executive Committee may
authorize any agent or employee to execute and deliver any contract or other
instrument in the name and on behalf of the Corporation, and such authority may
be general or confined to specific instances as the Board or such Committee, as
the case may be, may by resolution determine.
SECTION 2. Loans. Unless the Board shall otherwise determine, the Chairman
of the Board or a Vice Chairman of the Board or the President or any Vice
President, acting together with the Treasurer or the Secretary, may effect loans
and advances at any time for the Corporation from any bank, trust company or
other
-13-
<PAGE>
institution, or from any firm, corporation or individual, and for such loans and
advances may make, execute and deliver promissory notes, bonds or other
certificates or evidences of indebtedness of the Corporation, but in making such
loans or advances no officer or officers shall mortgage, pledge, hypothecate or
transfer any securities or other property of the Corporation, except when
authorized by resolution adopted by the Board.
SECTION 3. Checks, Drafts, etc. All checks, drafts, bills of exchange or
other orders for the payment of money out of the funds of the Corporation, and
all notes or other evidences of indebtedness of the Corporation, shall be signed
in the name and on behalf of the Corporation by such persons and in such manner
as shall from time to time be authorized by the Board or the Executive Committee
or authorized by the Treasurer acting together with either the General Manager
of an operating unit or a nonfinancial Vice President of the Corporation, which
authorization may be general or confined to specific instances.
SECTION 4. Deposits. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositaries as the Board or the Executive
Committee may from time to time designate or as may be designated by any officer
or officers of the Corporation to whom such power of designation may from time
to time be delegated by the Board or the Executive Committee. For the purpose of
deposit and for the purpose of collection for the account of the Corporation,
checks, drafts and other orders for the payment of money which are payable to
the order of the Corporation may be endorsed, assigned and delivered by any
officer, employee or agent of the Corporation.
SECTION 5. General and Special Bank Accounts. The Board or the Executive
Committee may from time to time authorize the opening and keeping of general and
special bank accounts with such banks, trust companies or other depositaries as
the Board or the Executive Committee may designate or as may be designated by
any officer or officers of the Corporation to whom such power of designation may
from time to time be delegated by the Board or the Executive Committee. The
Board or the Executive Committee may make such special rules and regulations
with respect to such bank accounts, not inconsistent with the provisions of
these By-laws, as it may deem expedient.
SECTION 6. Indemnification. The Corporation shall, to the fullest extent
permitted by applicable law as in effect at any time, indemnify any person made,
or threatened to be made, a party to an action or proceeding whether civil or
criminal (including an action or proceeding by or in the right of the
Corporation or any other corporation of any type or kind, domestic or foreign,
or any partnership, joint venture, trust, employee benefit plan or other
enterprise, for which any director or officer of the Corporation served in any
capacity at the request of the Corporation), by reason of the fact that such
person or such person's testator or intestate was a director or officer of the
Corporation, or served such other corporation, partnership, joint
-14-
<PAGE>
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 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 names shares of
stock shall stand on the
-15-
<PAGE>
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 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
-16-
<PAGE>
proceedings under the laws of the State of New York.
SECTION 7. Inspection of Records. The record of stockholders and minutes
of the proceedings of stockholders shall be available for inspection, within the
limits and subject to the conditions and restrictions prescribed by applicable
law.
SECTION 8. Auditors. The Board shall employ an independent public or
certified public accountant or firm of such accountants who shall act as
auditors in making examinations of the consolidated financial statements of the
Corporation and its subsidiaries in accordance with generally accepted auditing
standards. The auditors shall certify that the annual financial statements are
prepared in accordance with generally accepted accounting principles, and shall
report on such financial statements to the stockholders and directors of the
Corporation. The Board's selection of auditors shall be presented for
ratification by the stockholders at the annual meeting. Directors and officers,
when acting in good faith, may rely upon financial statements of the Corporation
represented to them to be correct by the officer of the Corporation having
charge of its books of account, or stated in a written report by the auditors
fairly to reflect the financial condition of the Corporation.
ARTICLE VIII
OFFICES
SECTION 1. Principal Office. The principal office of the Corporation shall
be at such place in the Town of North Castle, County of Westchester and State of
New York as the Board shall from time to time determine.
SECTION 2. Other Offices. The Corporation may also have an office or
offices other than said principal office at such place or places as the Board
shall from time to time determine or the business of the Corporation may
require.
ARTICLE IX
WAIVER OF NOTICE
Whenever under the provisions of any law of the State of New York, the
Certificate of Incorporation or these By-laws or any resolution of the Board or
any committee thereof, the Corporation or the Board or any committee thereof is
authorized to take any action after notice to the stockholders, directors or
members of any such committee, or after the lapse of a prescribed period of
time, such action may be taken without notice and without the lapse of any
period of time, if, at any time before or after such action shall be completed,
such notice or lapse of time shall be waived in writing by the person or persons
entitled to said notice or entitled to
-17-
<PAGE>
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.
-18-
<PAGE>
INTERNATIONAL BUSINESS
MACHINES CORPORATION
I, the undersigned, Secretary of International Business Machines
Corporation, do hereby certify that the foregoing is a true and complete copy of
the By-laws of said Corporation, including all amendments thereto, and the same
is in force at the date hereof.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the
seal of said Corporation, this day of 19 .
--------------------------
Secretary
-19-
EXHIBIT 11
COMPUTATION OF FULLY DILUTED EARNINGS PER
SHARE UNDER TREASURY STOCK METHOD SET FORTH
IN ACCOUNTING PRINCIPLES BOARD OPINION NO. 15
For Quarter Ended
--------------------------------------
September 30, 1997 September 30, 1996
------------------ ------------------
Number of shares on which earnings
per share is based:
Average outstanding during period 978,021,313 1,043,663,626*
Add - Incremental shares under stock
option and stock purchase plans 27,186,769 22,827,416*
-------------- --------------
Number of shares on which fully diluted
earnings per share is based 1,005,208,082 1,066,491,042*
============== ==============
Net earnings available to common
shareholders (millions) $ 1,354 $ 1,280
-------------- --------------
Net earnings on which fully
diluted earnings per share
is based (millions) $ 1,354 $ 1,280
============== ==============
Fully diluted earnings per share $ 1.35 $ 1.20*
Published earnings per share $ 1.38 $ 1.23*
* Adjusted to reflect a two-for-one-stock split on May 9, 1997.
<PAGE>
EXHIBIT 11
COMPUTATION OF FULLY DILUTED EARNINGS PER
SHARE UNDER TREASURY STOCK METHOD SET FORTH
IN ACCOUNTING PRINCIPLES BOARD OPINION NO. 15 - (CONTINUED)
For Nine Months Ended
-------------------------------------
September 30, 1997 September 30, 1996
------------------ ------------------
Number of shares on which earnings
per share is based:
Average outstanding during period 989,436,333 1,066,676,820*
Add - Incremental shares under stock
option and stock purchase plans 29,727,625 22,926,678*
-------------- --------------
Number of shares on which fully
diluted earnings per share is based 1,019,163,958 1,089,603,498*
============== ==============
Net earnings available to common
shareholders (millions) $ 3,985 $ 3,391
-------------- --------------
Net earnings on which fully
diluted earnings per share
is based (millions) $ 3,985 $ 3,391
============== ==============
Fully diluted earnings per share $ 3.91 $ 3.11*
Published earnings per share $ 4.03 $ 3.18*
* Adjusted to reflect a two-for-one stock split on May 9, 1997.
EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
FOR NINE MONTHS ENDED SEPTEMBER 30:
(UNAUDITED)
(Dollars in millions)
1997 1996
------ ------
Earnings before income taxes(1) $6,035 $5,706
Add:
Fixed charges, excluding capitalized interest 1,449 1,450
------ ------
Earnings as adjusted $7,484 $7,156
====== ======
Fixed charges:
Interest expense 1,157 1,153
Capitalized interest 26 24
Portion of rental expense representative of
interest 292 297
------ ------
Total fixed charges $1,475 $1,474
====== ======
Preferred stock dividends(2) 22 25
------ ------
Combined fixed charges and preferred stock
dividends $1,497 $1,499
====== ======
Ratio of earnings to fixed charges 5.07 4.85
Ratio of earnings to combined fixed charges and
preferred stock dividends 5.00 4.78
(1) Earnings before income taxes excludes the company's share in the income
and losses of less-than-fifty percent-owned affiliates.
(2) Included in the ratio computation are preferred stock dividends of $15
million for the first nine months of 1997 and 1996, or $22 million and $25
million, respectively, representing the pre-tax earnings which would be
required to cover such dividend requirements based on the company's
effective tax rate for the nine months ended September 30, 1997 and 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM IBM
CORPORATION'S FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,926
<SECURITIES> 560
<RECEIVABLES> 16,078
<ALLOWANCES> 0
<INVENTORY> 5,981
<CURRENT-ASSETS> 38,190
<PP&E> 42,030
<DEPRECIATION> 24,109
<TOTAL-ASSETS> 78,293
<CURRENT-LIABILITIES> 30,590
<BONDS> 0
8,758
0
<COMMON> 253
<OTHER-SE> 10,745
<TOTAL-LIABILITY-AND-EQUITY> 78,293
<SALES> 24,722
<TOTAL-REVENUES> 54,785
<CGS> 16,326
<TOTAL-COSTS> 33,694
<OTHER-EXPENSES> 15,026
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 534
<INCOME-PRETAX> 6,015
<INCOME-TAX> 2,015
<INCOME-CONTINUING> 4,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,000
<EPS-PRIMARY> 4.03
<EPS-DILUTED> 3.91
</TABLE>
