<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
ANNUAL REPORT
pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
FOR THE YEAR ENDED DECEMBER 31, 1996
1-2360
(Commission File Number)
INTERNATIONAL BUSINESS MACHINES CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
NEW YORK 13-0871985
(State of incorporation) (IRS employer identification number)
ARMONK, NEW YORK 10504
<S> <C>
(Address of principal executive offices) (Zip Code)
</TABLE>
914-765-1900
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
VOTING SHARES
OUTSTANDING NAME OF EACH EXCHANGE
TITLE OF EACH CLASS AT MARCH 11, 1997 ON WHICH REGISTERED
- -------------------------------------------------------------- ----------------- ------------------------------
<S> <C> <C>
Capital stock, par value $1.25 per share 498,985,928 New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
Depositary shares each representing one-fourth of a share of New York Stock Exchange
7 1/2% preferred stock, par value $.01 per share
6 3/8% Notes due 1997 New York Stock Exchange
6 3/8% Notes due 2000 New York Stock Exchange
7 1/4% Notes due 2002 New York Stock Exchange
7 1/2% Debentures due 2013 New York Stock Exchange
8 3/8% Debentures due 2019 New York Stock Exchange
7% Debentures due 2025 New York Stock Exchange
7% Debentures due 2045 New York Stock Exchange
7 1/8% Debentures due 2096 New York Stock Exchange
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the voting stock held by non-affiliates of the
registrant at March 11, 1997 was $72.9 billion.
Documents incorporated by reference:
Portions of IBM's Annual Report to Stockholders for the year ended
December 31, 1996 into Parts I and II of Form 10-K.
Portions of IBM's definitive Proxy Statement dated March 18, 1997 into
Part III of Form 10-K.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS:
IBM develops, manufactures and sells advanced information processing
products, including computers and microelectronic technology, software,
networking systems and information technology-related services. The company
offers value through its worldwide sales and service units in North America,
Europe/Middle East/Africa, Asia Pacific and Latin America by providing
comprehensive and competitive product choices.
The value of unfilled orders is not a meaningful indicator of future
revenues due to the significant proportion of revenue from services, the volume
of products delivered from shelf inventories, and the shortening of product
delivery schedules. Therefore, the company believes that backlog information is
not material to an understanding of its business.
IBM owns or is licensed under a number of patents relating to its products.
Licenses under patents owned by IBM have been and are being granted to others
under reasonable terms and conditions. IBM believes its business as a whole is
not materially dependent upon any particular patent or license, or any
particular group of patents or licenses.
The following information is included in IBM's 1996 Annual Report to
Stockholders and is incorporated herein by reference:
Segment information and revenue by classes of similar products or
services--Pages 82 and 83.
Financial information by geographic areas--Pages 84 and 85.
Amount spent during each of the last three years on research and
development activities-- Page 68.
Financial information regarding environmental activities--Page 69.
The number of persons employed by the registrant--Page 55.
The management discussion overview--Page 44.
ITEM 2. PROPERTIES:
At December 31, 1996, IBM's manufacturing and development facilities in the
United States had aggregate floor space of 49.7 million square feet, of which
41.3 million was owned and 8.4 million was leased. Of these amounts, 9.1 million
square feet was vacant and 2.5 million square feet was being leased to non-IBM
businesses. Similar facilities in 15 other countries totaled 15.1 million square
feet, of which 12.2 million was owned and 2.9 million was leased. Of these
amounts, .3 million square feet was vacant and .4 million square feet was being
leased to non-IBM businesses.
Although improved production techniques, productivity gains and
restructuring actions have resulted in reduced manufacturing floor space,
continuous upgrading of facilities is essential to maintain technological
leadership, improve productivity and meet customer demand. For additional
information on expenditures for plant, rental machines and other property, refer
to "Investments" on page 52 of IBM's 1996 Annual Report to Stockholders which is
incorporated herein by reference.
1
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT (AT MARCH 26, 1997):
<TABLE>
<CAPTION>
OFFICER
AGE SINCE
--- -----------
<S> <C> <C>
Chairman of the Board of Directors and Chief Executive Officer
Louis V. Gerstner, Jr.(1).................................................... 55 1993
Senior Vice Presidents
J. Thomas Bouchard, Human Resources.......................................... 56 1994
Nicholas M. Donofrio, Group Executive........................................ 51 1995
J. Bruce Harreld, Strategy................................................... 46 1995
Paul M. Horn, Research....................................................... 50 1996
Ned C. Lautenbach, Group Executive........................................... 53 1987
Lawrence R. Ricciardi, General Counsel....................................... 56 1995
Robert M. Stephenson, Group Executive........................................ 58 1995
G. Richard Thoman, Chief Financial Officer................................... 52 1993
John M. Thompson, Group Executive............................................ 54 1989
Vice Presidents
John E. Hickey, Secretary.................................................... 53 1994
John R. Joyce, Controller.................................................... 43 1996
Jeffrey D. Serkes, Treasurer................................................. 38 1994
</TABLE>
- ------------------------
(1) Member of the Board of Directors.
All officers are elected by the Board of Directors and serve until the next
election of officers in conjunction with the annual meeting of the stockholders
as provided in the By-laws. Each officer named above, with the exception of J.
Thomas Bouchard, Louis V. Gerstner, Jr., J. Bruce Harreld, Lawrence R.
Ricciardi, Jeffrey D. Serkes, and G. Richard Thoman, has been an executive of
IBM or its subsidiaries during the past five years.
Mr. Bouchard was senior vice president, human resources, of U.S. West, Inc.,
a telecommunications company, from 1989 until joining IBM in 1994. Prior to
1989, he spent 15 years with United Technologies Corporation in a variety of
executive positions, including senior vice president of human resources.
Mr. Gerstner was the chairman of the board and chief executive officer of
RJR Nabisco Holdings Corporation, an international consumer products company,
from 1989 until joining IBM in 1993. From 1985 to 1989, he was president of
American Express Company, and from 1983 to 1989, he was chairman and chief
executive officer of American Express Travel Related Services Co., Inc.
Mr. Harreld was president of Boston Chicken, Inc., a company which operates
and franchises foodservice stores, from 1993 until joining IBM in 1995. Prior to
that he was senior vice president, marketing and information services, at Kraft
General Foods, Inc. where he also served as the company's chief information
officer from 1989 to 1992.
Mr. Ricciardi was president of RJR Nabisco, Inc., an international consumer
products company, from 1993 until joining IBM in 1995. From 1989 to 1993, he
also served as executive vice president and general counsel at RJR Nabisco, Inc.
Prior to 1989, he was executive vice president and general counsel of American
Express Travel Related Services Company, Inc.
Mr. Serkes was vice president and deputy treasurer at RJR Nabisco, Inc., an
international consumer company, from 1993 until joining IBM in 1994. From 1987
to 1993, he also served as vice president and assistant treasurer, corporate
finance; director, capital markets; and manager, foreign exchange at RJR
Nabisco, Inc.
2
<PAGE>
Mr. Thoman was the president of Nabisco International, Inc., a food company,
from 1992 until joining IBM in 1993. From 1985 to 1989, he was president of
American Express Travel Related Services International, and co-chief executive
officer of American Express Travel Related Services Co., Inc., and chief
executive officer of American Express International from 1989 to 1992.
ITEM 3. LEGAL PROCEEDINGS:
Refer to note L "Contingencies" on page 69 of IBM's 1996 Annual Report to
Stockholders which is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS:
Refer to page 86 and 87 of IBM's 1996 Annual Report to Stockholders which
are incorporated herein by reference.
IBM common stock is listed on the New York Stock Exchange, Chicago Stock
Exchange and Pacific Stock Exchange. There were 615,605 common stockholders of
record at March 11, 1997.
ITEM 6. SELECTED FINANCIAL DATA:
Refer to page 86 of IBM's 1996 Annual Report to Stockholders which is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
Refer to pages 44 through 55 of IBM's 1996 Annual Report to Stockholders
which are incorporated herein by reference.
On January 28, 1997, the IBM Board of Directors declared a two-for-one
common stock split, subject to the approval of stockholders of an increase in
the number of common shares authorized from 750 million to 1,875 million.
The record date for the split is currently expected to be on or after May 9,
1997, with distribution of the split shares to follow on or after May 27, 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
Refer to pages 42 and 43 and 56 through 85 of IBM's 1996 Annual Report to
Stockholders which are incorporated herein by reference. Also refer to the
Financial Statement Schedule on page S-1 of this Form.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE:
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:
Refer to pages 5 through 7 and the section entitled "Section 16(a)
Beneficial Ownership Reporting Compliance" appearing on page 11 of IBM's
definitive Proxy Statement dated March 18, 1997 which are incorporated herein by
reference. Also refer to Item 2 entitled "Executive Officers of the Registrant"
in Part I of this Form.
3
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION:
Refer to pages 13 through 23 of IBM's definitive Proxy Statement dated March
18, 1997, which are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
(a) Security Ownership of Certain Beneficial Owners:
Refer to the section entitled "Security Ownership of Certain Beneficial
Owners" appearing on page 11 of IBM's definitive Proxy Statement dated
March 18, 1997, which is incorporated herein by reference.
(b) Security Ownership of Management:
Refer to the section entitled "Common Stock and Total Stock-Based
Holdings of Management" appearing on pages 12 and 13 of IBM's definitive
Proxy Statement dated March 18, 1997, which is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
Refer to the section entitled "Other Relationships" appearing on page 10 of
IBM's definitive Proxy Statement dated March 18, 1997, which is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K:
(a) The following documents are filed as part of this report:
1. Financial statements from IBM's 1996 Annual Report to Stockholders
which are incorporated herein by reference:
Report of Independent Accountants (page 43).
Consolidated Statement of Earnings for the years ended December 31,
1996, 1995 and 1994 (page 56).
Consolidated Statement of Financial Position at December 31, 1996 and
1995 (page 57).
Consolidated Statement of Cash Flows for the years ended December 31,
1996, 1995 and 1994 (page 58).
Consolidated Statement of Stockholders' Equity at December 31, 1996,
1995 and 1994 (page 59).
Notes to Consolidated Financial Statements (pages 60 through 85)
2. Financial statement schedules required to be filed by Item 8 of this
Form:
<TABLE>
<CAPTION>
SCHEDULE
PAGE NUMBER
- ----------- -------------
<S> <C> <C>
8 Report of Independent Accountants on Financial Statement Schedule.
II Valuation and Qualifying Accounts
S-1
</TABLE>
All other schedules are omitted as the required matter is not present,
the amounts are not significant or the information is shown in the
financial statements or the notes thereto.
4
<PAGE>
3. Exhibits:
Included in this Form 10-K:
I--Computation of Fully Diluted Earnings Per Share.
II-- Computation of Ratio of Earnings to Fixed Charges and Earnings to
Combined Fixed Charges and Preferred Stock Dividends.
III--Parents and Subsidiaries.
IV--Consent of Independent Accountants.
V-- Additional Exhibits
(a) Supplemental Consolidated Statement of Earnings--1996 and 1995.
VI--The By-laws of IBM as amended through April 30, 1996.
VII-- IBM's 1996 Annual Report to Stockholders, certain sections of
which have been incorporated herein by reference.
VIII--Powers of Attorney.
IX--Financial Data Schedule.
Not included in this Form 10-K:
-- The Certificate of Incorporation of IBM is Exhibit VI to Form 10-K
for the year ended December 31, 1993, and is hereby incorporated by
reference.
-- The IBM 1994 Long-Term Performance Plan, a management compensatory
plan, is contained in Registration Statement No. 33-53777 on Form
S-8, filed on May 24, 1994, and is hereby incorporated by reference.
-- Board of Directors compensatory plans, as described under
"Directors' Compensation" on pages 10 and 11 of IBM's definitive
Proxy Statement dated March 18, 1997, which is incorporated herein
by reference.
-- IBM Board of Directors Deferred Compensation and Equity Award Plan
is Exhibit X to Form 10-K for the year ended December 31, 1995 and
is hereby incorporated by reference.
-- The employment agreement for L.V. Gerstner, Jr. is Exhibit 19 to
Form 10-Q dated March 31, 1993, and is hereby incorporated by
reference.
-- Amendment to Employment Agreement for L.V. Gerstner, Jr. dated as
of January 1, 1996 is Exhibit XI to Form 10-K for the year ended
December 31, 1995, and is hereby incorporated by reference.
-- The instruments defining the rights of the holders of the 6 3/8%
Notes due 1997 and the 7 1/4% Notes due 2002 are Exhibits 4(a)
through 4(l) to Registration Statement No. 33-33590 on Form S-3,
filed on February 22, 1990, and are hereby incorporated by
reference.
-- The instruments defining the rights of the holders of the 6 3/8%
Notes due 2000 and the 7 1/2% Debentures due 2013 are Exhibits 4(a)
through 4(l) to Registration Statement No. 33-49475(1) on Form S-3,
filed May 24, 1993, and are hereby incorporated by reference.
5
<PAGE>
-- The instruments defining the rights of holders of the 8 3/8%
Debentures due 2019 are Exhibits 4(a)(b)(c) and (d) to Registration
Statement 33-31732 on Form S-3, filed on October 24, 1989, and are
hereby incorporated by reference.
-- The instruments defining the rights of holders of the 7% Debentures
due 2025 and the 7% Debentures due 2045 are Exhibit 2 and 3 to Form
8-K, filed on October 30, 1995, and are hereby incorporated by
reference.
-- The instrument defining the rights of holders of the 7 1/8%
Debentures due 2096 is Exhibit 2 to Form 8-K/A, filed on December 6,
1996, and is hereby incorporated by reference.
-- The IBM Supplemental Executive Retirement Plan is Exhibit IX to
Form 10-K for the year ended December 31, 1994, and is hereby
incorporated by reference.
-- The IBM Extended Tax Deferred Savings Plan as amended and restated
effective January 1, 1996, is Exhibit 10 to Form 10-Q for the
quarter ended March 31, 1996, and is hereby incorporated by
reference.
-- The IBM Tax Deferred Savings Plan as amended and restated as of
June 15, 1996, is Exhibit 4 to Registration Statment No. 333-09055
on form S-8, filed on July 29, 1996, and is hereby incorporated by
reference.
-- IBM's definitive Proxy Statement dated March 18, 1997, certain
sections of which have been incorporated herein by reference.
(b) Reports on Form 8-K:
A Form 8-K dated October 21, 1996, was filed with respect to the
company's financial results for the periods ended September 30, 1996 and
included unaudited consolidated financial statements for the period
ended September 30, 1996.
A Form 8-K dated December 5, 1996 and a Form 8-K/A dated December 6,
1996, were filed to incorporate by reference into Registration Statement
No. 33-65119 on Form S-3, effective February 7, 1996, the Underwriting
Agreement dated December 3, 1996, among International Business Machines
Corporation, Salomon Brothers Inc., Chase Securities Inc., CS First
Boston Corporation, Merrill Lynch, Pierce, Fenner and & Smith
Incorporated and Morgan Stanley & Co. Incorporated. In addition, the
Form of the $850 million 7 1/8% Debenture due 2096 was incorporated by
reference into Registration Statement No. 33-65119 on Form S-3,
effective February 7, 1996 and were part of this Form 8-K and Form
8-K/A. No financial statements were filed with the Form 8-K or Form
8-K/A.
6
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
INTERNATIONAL BUSINESS MACHINES CORPORATION
(Registrant)
By: /s/ LOUIS V. GERSTNER, JR.
------------------------------------------
Louis V. Gerstner, Jr.
(CHAIRMAN OF THE BOARD OF DIRECTORS
AND CHIEF EXECUTIVE OFFICER)
Date: March 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ (G. RICHARD THOMAN) Senior Vice President
- ------------------------------ and Chief Financial March 26, 1997
(G. Richard Thoman) Officer
/s/ (JOHN R. JOYCE) Vice President and
- ------------------------------ Controller March 26, 1997
(John R. Joyce)
<TABLE>
<S> <C> <C> <C>
CATHLEEN BLACK Director
HAROLD BROWN Director
JUERGEN DORMANN Director
NANNERL O. KEOHANE Director
CHARLES F. KNIGHT Director
LUCIO A. NOTO Director By: /s/JOHN E. HICKEY
JOHN B. SLAUGHTER Director (John E. Hickey)
ALEX TROTMAN Director Attorney-in-fact
CHARLES M. VEST Director March 26, 1997
</TABLE>
7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Stockholders and Board of Directors of
International Business Machines Corporation
Our audits of the consolidated financial statements referred to in our
report dated January 20, 1997, appearing on page 43 of the 1996 Annual Report to
Stockholders of International Business Machines Corporation, (which report and
consolidated financial statements are incorporated by reference in this Annual
Report on Form 10-K) also included an audit of the Financial Statement Schedule
listed in Item 14(a)2 of this Form 10-K. In our opinion, this Financial
Statement Schedule presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, N.Y. 10036
January 20, 1997
8
<PAGE>
SCHEDULE II
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31:
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING NET END
DESCRIPTION OF PERIOD CHANGE(A) OF PERIOD
- ------------------------------------------------------------------------------ ------------- ------------- -------------
<S> <C> <C> <C>
1996
Account deducted from assets:
Allowance for doubtful accounts
--Current................................................................. $ 790 $ (3) $ 787
----- --- -----
----- --- -----
--Non-current............................................................. $ 174 $ (10) $ 164
----- --- -----
----- --- -----
1995
Account deducted from assets:
Allowance for doubtful accounts
--Current................................................................. $ 719 $ 71 $ 790
----- --- -----
----- --- -----
--Non-current............................................................. $ 166 $ 8 $ 174
----- --- -----
----- --- -----
1994
Account deducted from assets:
Allowance for doubtful accounts
--Current................................................................. $ 683 $ 36 $ 719
----- --- -----
----- --- -----
--Non-current............................................................. $ 187 $ (21) $ 166
----- --- -----
----- --- -----
</TABLE>
- ------------------------
(A) Includes additions charged to costs and expenses less accounts written off
and translation adjustments.
Note--
The receivables upon which the above allowances are based are highly
diversified by geography, industry and individual customer. The allowances for
receivable losses for the year ended 1996 approximate less than three and
one-half percent of the company's current receivables and less than one and one-
half percent of the company's non-current receivables. The allowances for
receiveable losses for the year ended 1995 approximate less than three and
one-half percent of the company's current receivables and one and one-half
percent of non-current receivables. The allowances for receivable losses for the
year ended 1994 approximate less than three and one-quarter percent of the
company's current receivables and less than one and one-half percent of the
company's non-current receivables.
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
REFERENCE
NUMBER PER
ITEM 601 OF EXHIBIT
REGULATION NUMBER IN
S-K DESCRIPTION OF EXHIBITS THIS FORM 10-K
- --------------- ---------------------------------------------------------------------------------- ----------------
<C> <S> <C>
(2) Plan of acquisition, reorganization, arrangement, liquidation or succession. Not applicable
(3) Certificate of Incorporation and By-laws.
The Certificate of Incorporation of IBM is Exhibit VI to Form 10-K for the year
ended December 31, 1993, and is hereby incorporated by reference.
The By-laws of IBM as amended through April 30, 1996. VI
(4) Instruments defining the rights of security holders.
The instruments defining the rights of the holders of the 6 3/8% Notes due 1997
and the 7 1/4% Notes due 2002 are Exhibits 4(a) through 4(l) to Registration
Statement No. 33-33590 on Form S-3, filed February 22, 1990, and are hereby
incorporated by reference.
The instruments defining the rights of the holders of the 6 3/8% Notes due 2000
and the 7 1/2% Debentures due 2013 are Exhibits 4(a) through 4(l) to
Registration Statement No. 33-49475(1) on Form S-3, filed on
May 24, 1993, and are hereby incorporated by reference.
The instruments defining the rights of the holders of the 8 3/8% Debentures due
2019 are Exhibits 4(a)(b)(c) and (d) to Registration Statement No. 33-31732 on
Form S-3, filed on October 24, 1989, are hereby incorporated by reference.
The instruments defining the rights of the holders of the 7% Debentures due 2025
and the 7% Debentures due 2045 are Exhibits 2 and 3 to Form 8-K, filed on
October 30, 1995, and are hereby incorporated by reference.
The instrument defining the rights of the holders of the 7 1/8% Debentures due
2096 is Exhibit 2 to Form 8-K/A, filed on December 6, 1996, and is hereby
incorporated by reference.
(9) Voting trust agreement. Not applicable
(10) Material contracts.
A copy of the IBM 1994 Long-Term Performance Plan is contained in Registration
Statement No. 33-53777 on Form S-8, filed on May 24, 1994, and is hereby
incorporated by reference.
Board of Directors compensatory arrangements as described under "Directors'
Compensation" on page 10 of IBM's definitive Proxy Statement dated March 18,
1997, and is hereby incorporated by reference.
The IBM Supplemental Executive Retirement Plan is Exhibit IX to Form 10-K for the
year ended December 31, 1994, and is hereby incorporated by reference.
The IBM Extended Tax Deferred Savings Plan as amended and restated effective
January 1, 1996, is Exhibit 10 to Form 10-Q for the quarter ended March 31,
1996, and is hereby incorporated by reference.
The IBM Board of Directors Deferred Compensation and Equity Award Plan is Exhibit
X to Form 10-K for the year ended December 31, 1995, and is hereby incorporated
by reference.
The IBM Non-Employee Directors Stock Option Plan is Appendix B to IBM's definitive
Proxy Statement dated March 14, 1995, and is hereby incorporated by reference.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
REFERENCE
NUMBER PER
ITEM 601 OF EXHIBIT
REGULATION NUMBER IN
S-K DESCRIPTION OF EXHIBITS THIS FORM 10-K
- --------------- ---------------------------------------------------------------------------------- ----------------
<C> <S> <C>
The employment agreement for L.V. Gerstner, Jr. is Exhibit 19 to Form 10-Q dated
March 31, 1993, and is hereby incorporated by reference.
Amendment to Employment Agreement for L.V. Gerstner, Jr. dated as of January 1,
1996 is Exhibit XI to Form 10-K for the year ended December 31,1995, and is
hereby incorporated by reference.
The IBM Tax Deferred Savings Plan as amended and restated as of June 15, 1996, is
Exhibit 4 to Registration Statement No. 333-09055 on Form S-8, filed on July 29,
1996, and is hereby incorporated by reference.
(11) Statement re computation of per share earnings. I
(12) Statement re computation of ratios. II
(13) Annual report to security holders. VII
(18) Letter re change in accounting principles. Not applicable
(19) Previously unfiled documents. Not applicable
(21) Subsidiaries of the registrant. III
(22) Published report regarding matters submitted to vote of security holders. Not applicable
(23) Consents of experts and counsel. IV
(24) Powers of attorney. VIII
(27) Financial Data Schedule. IX
(28) Information from reports furnished to state insurance regulatory authorities. Not applicable
(99) Additional exhibits. V
</TABLE>
<PAGE>
BY-LAWS
of
INTERNATIONAL BUSINESS MACHINES CORPORATION
Adopted April 29, 1958
As Amended Through
April 30, 1996
[April 30, 1996]
<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
[April 30, 1996] - 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
[April 30, 1996] - 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
[April 30, 1996] - 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
[April 30, 1996] - 1 -
<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
the Secretary a written request that notices be mailed to some other address, it
shall be mailed to the address designated in such request. Nevertheless, notice
of any meeting of the stockholders shall not be required to be given to any
stockholder who shall waive notice thereof as hereinafter provided in Article IX
of these By-laws. Except when expressly required by law, notice of any adjourned
meeting of the stockholders need not be given nor shall publication of notice of
any annual or special meeting thereof be required.
SECTION 5. Quorum. Except as otherwise provided by law, at all meetings
of the stockholders, the presence of holders of record of a majority of the
outstanding shares of stock of the Corporation having voting power, in person or
represented by proxy and entitled to vote thereat, shall be necessary to
constitute a quorum for the transaction of business. In the absence of a quorum
at any such meeting or any adjournment or adjournments thereof, a majority in
voting interest of those present in person or represented by proxy and entitled
to vote thereat, or, in the absence of all the stockholders, any officer
entitled to preside at, or to act as secretary of, such meeting, may adjourn
such meeting from time to time without further notice, other than by
announcement at the meeting at which such adjournment shall be taken, until a
quorum shall be present thereat. At any adjourned meeting at which a quorum
shall be present any business may be transacted which might have been transacted
at the meeting as originally called.
[April 30, 1996] - 2 -
<PAGE>
Section 6. Organization. At each meeting of the stockholders, the
Chairman of the Board, or in the absence of the Chairman of the Board, the
President, or in the absence of the Chairman of the Board and the President, a
Vice Chairman of the Board, or if the Chairman of the Board, the President, and
all Vice Chairmen of the Board shall be absent therefrom, an Executive Vice
President, or if the Chairman of the Board, the President, all Vice Chairmen of
the Board and all Executive Vice Presidents shall be absent therefrom, a Senior
Vice President shall act as chairman. The Secretary, or, if the Secretary shall
be absent from such meeting or unable to act, the person whom the Chairman of
such meeting shall appoint secretary of such meeting shall act as secretary of
such meeting and keep the minutes thereof.
Section 7. Items of Business. The items of business at all meetings of
the stockholders shall be, insofar as applicable, as follows:
-- Call to order.
-- Proof of notice of meeting or of waiver thereof.
-- Appointment of inspectors of election, if necessary.
-- A quorum being present.
-- Reports.
-- Election of directors.
-- Other business specified in the notice of the meeting.
-- Voting.
-- Adjournment.
Any items of business not referred to in the foregoing may be taken up at
the meeting as the chairman of the meeting shall determine. The chairman of the
meeting shall determine all matters relating to the efficient conduct of the
meeting, including but not limited to the maintenance of order and decorum.
SECTION 8. Voting. Except as otherwise provided by law, each holder of
record of shares of stock of the Corporation having voting power shall be
entitled at each meeting of the stockholders to one vote for every share of such
stock standing in the stockholder's name on the record of stockholders of the
Corporation:
(a) on the date fixed pursuant to the provisions of Section 5 of Article
VII of these By-laws as the record date for the determination of the
stockholders who shall be entitled to vote at such meeting, or
[April 30, 1996] - 3 -
<PAGE>
(b) if such record date shall not have been so fixed, then at the close
of business on the day next preceding the day on which notice of such meeting
shall have been given, or
(c) if such record date shall not have been so fixed and if no notice
of such meeting shall have been given, then at the time of the call to order of
such meeting.
Any vote on stock of the Corporation at any meeting of the stockholders
may be given by the stockholder of record entitled thereto in person or by proxy
appointed by an instrument in writing, subscribed by such stockholder or by the
stockholder's attorney thereunto duly authorized and delivered to the secretary
of such meeting at or prior to the time designated in the order of business for
turning in proxies. At all meetings of the stockholders at which a quorum shall
be present, all matters (except where otherwise provided by law, the Certificate
of Incorporation or these By-laws) shall be decided by the vote of a majority in
voting interest of the stockholders present in person or represented by proxy
and entitled to vote thereat. Unless required by law, or determined by the
chairman of the meeting to be advisable, the vote on any question need not be by
ballot. On a vote by ballot, each ballot shall be signed by the stockholder
voting, or by the stockholder's proxy as such, if there be such proxy.
SECTION 9. List of Stockholders. A list, certified by the Secretary, of
the stockholders of the Corporation entitled to vote shall be produced at any
meeting of the stockholders upon the request of any stockholder of the
Corporation pursuant to the provisions of applicable law, the Certificate of
Incorporation or these By-laws.
Section 10. Inspectors of Election. Prior to the holding of each annual
or special meeting of the stockholders, two inspectors of election to serve
thereat shall be appointed by the Board, or, if the Board shall not have made
such appointment, by the Chairman of the Board. If there shall be a failure to
appoint inspectors, or if, at any such meeting, any inspector so appointed shall
be absent or shall fail to act or the office shall become vacant, the chairman
of the meeting may, and at the request of a stockholder present in person and
entitled to vote at such meeting shall, appoint such inspector or inspectors of
election, as the case may be, to act thereat. The inspectors of election so
appointed to act at any meeting of the stockholders, before entering upon the
discharge of their duties, shall be sworn faithfully to execute the duties of
inspectors at such meeting, with strict impartiality and according to the best
of their ability, and the oath so taken shall be subscribed by them. Such
inspectors of election shall take charge of the polls, and, after the voting on
any question, shall make a certificate of the results of the vote taken. No
director or candidate for the office of director shall act as an inspector of an
election of directors. Inspectors need not be stockholders.
[April 30, 1996] - 4 -
<PAGE>
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. General Powers. The business and affairs of the Corporation
shall be managed by the Board. The Board may exercise all such authority and
powers of the Corporation and do all such lawful acts and things as are not by
law, the Certificate of Incorporation or these By-laws, directed or required to
be exercised or done by the stockholders.
SECTION 2. Number; Qualifications; Election; Term of Office. The number
of directors of the Corporation shall be eleven, 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
[April 30, 1996] - 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
[April 30, 1996] - 6 -
<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,
[April 30, 1996] - 7 -
<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
[April 30, 1996] - 8 -
<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.
[April 30, 1996] - 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
[April 30, 1996] - 10 -
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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;
[April 30, 1996] - 11 -
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(c) deposit all moneys and other valuables to the credit of the Corporation
in such depositaries as may be designated by the Board or the Executive
Committee;
(d) receive, and give receipts for, moneys due and payable to the
Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the investment of
its funds, taking proper vouchers therefor;
(f) render to the Board, whenever the Board may require, an account of all
transactions as Treasurer; and
(g) in general, perform all the duties incident to the office of Treasurer
and such other duties as from time to time may be assigned by the Board or the
Chairman of the Board or a Vice Chairman of the Board or the President or an
Executive or Senior Vice President.
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.
[April 30, 1996] - 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
[April 30, 1996] - 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
[April 30, 1996] - 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
[April 30, 1996] - 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
[April 30, 1996] - 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
[April 30, 1996] - 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.
[April 30, 1996] - 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
[April 30, 1996] - 19 -
<PAGE>
EXHIBIT I
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
UNDER TREASURY STOCK METHOD SET FORTH IN
ACCOUNTING PRINCIPLES BOARD OPINION NO. 15
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31:
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993* 1992*
------------- ------------- ------------- ------------- -------------
Number of shares on which published
earnings per share is based:
Average outstanding during year.... 528,352,094 569,384,029 584,958,699 573,239,240 570,896,489
Add-- Incremental shares under stock
compensation and stock purchase
plans........................... 11,502,358 9,223,139 4,308,269 -- --
-- Incremental shares related to
5 3/4% CGI convertible bonds
(average)....................... -- 5,291,098 7,715,391 -- --
------------- ------------- ------------- ------------- -------------
Number of shares on which fully
diluted earnings per share is
based.............................. 539,854,452 583,898,266 596,982,359 573,239,240 570,896,489
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Net earnings (loss) applicable to
common shareholders (millions)..... $ 5,409 $ 4,116 $ 2,937 $ (8,148) $ (4,965)
--Net earnings (loss) effect of
interest on 5 3/4% CGI
convertible bonds (millions)..... -- 1 19 -- --
------------- ------------- ------------- ------------- -------------
Net earnings (loss) on which fully
diluted earnings per share is based
(millions)......................... $ 5,409 $ 4,117 $ 2,956 $ (8,148) $ (4,965)
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Fully diluted earnings (loss) per
share.............................. $ 10.02 $ 7.05 $ $4.95 $ (14.22) $ (8.70)
Published earnings (loss) per
share.............................. $ 10.24 $ 7.23 $ $5.02 $ (14.22) $ (8.70)
</TABLE>
- ------------------------
* In 1993 and 1992, incremental shares under stock plans and the effect of the
convertible debentures and bonds were not considered for the fully diluted
earnings per share calculation due to their antidilutive effect. As such,
the amounts reported for primary and fully diluted earnings per share are
the same.
<PAGE>
EXHIBIT II
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIVIDENDS
(UNAUDITED)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31:
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
Earnings before income taxes and change in accounting
principles(1)............................................... $ 8,599 $ 7,910 $ 5,253 $ (8,432) $ (8,861)
Add:
Fixed charges, excluding capitalized interest............... 1,942 1,972 2,450 2,853 3,348
--------- --------- --------- --------- ---------
Earnings as adjusted.......................................... $ 10,541 $ 9,882 $ 7,703 $ (5,579) $ (5,513)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Fixed charges:
Interest expense............................................ $ 1,545 $ 1,591 $ 2,025 $ 2,291 $ 2,645
Capitalized interest........................................ 31 23 20 46 101
Portion of rental expense representative of interest........ 397 381 425 562 703
--------- --------- --------- --------- ---------
Total fixed charges........................................... $ 1,973 $ 1,995 $ 2,470 $ 2,899 $ 3,449
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Preferred stock dividends(2).................................. 32 37 144 47 0
--------- --------- --------- --------- ---------
Combined fixed charges and preferred stock dividends.......... $ 2,005 $ 2,032 $ 2,614 $ 2,946 $ 3,449
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Ratio of earnings to fixed charges............................ 5.3 5.0 3.1 (A) (A)
Ratio of earnings to combined fixed charges and preferred
stock dividends............................................. 5.3 4.9 2.9 (A) (A)
</TABLE>
- ------------------------
(1) Earnings before income taxes and changes in accounting principle excludes
both amortization expense of capitalized interest as well as the company's
share in the income and losses of less-than-fifty-percent-owned affiliates.
(2) The company reported preferred stock dividends and transaction costs of $20
million and $62 million for 1996 and 1995, respectively. Excluded from the
ratio computation for 1995 are transaction costs of $42 million relating to
the repurchase of Series A 7 1/2 percent preferred stock depositary shares.
Included are preferred stock dividends of $20 million, for 1996 and 1995,
respectively, or $32 million and $37 million representing the pre-tax
earnings which would be required to cover such dividend requirements based
on the company's effective income tax rate for year end 1996 and 1995,
respectively. For the 1994 and 1993, preferred stock dividends are also on a
pre-tax basis.
(A) No ratios are shown for these periods as earnings were insufficient to cover
fixed charges and combined fixed charges and preferred stock dividends. As a
result of the net loss incurred for the year ended December 31, 1993
earnings were inadequate to cover fixed charges and combined fixed charges
and preferred stock dividends by $8,478 million and $8,525 million,
respectively. As a result of the net loss incurred for the year ended
December 31, 1992, earnings were inadequate to cover fixed charges by $8,962
million.
<PAGE>
Exhibit 13
FINANCIAL REPORT
42. Report of Management
43. Report of Independent Accountants
44. Management Discussion
56. Consolidated Financial Statements
Earnings
Financial Position
Cash Flows
Stockholders' Equity
60. Notes To Consolidated Financial Statements
60. A Signicant Accounting Policies
62. B Accounting Changes
63. C Inventories
63. D Plant, Rental Machines and Other Property
64. E Investments and Sundry Assets
64. F Debt
66. G Taxes
68. H Selling and Advertising
68. I Research, Development and Engineering
69. J Interest on Debt
69. K Other Liabilities and Environmental
69. L Contingencies
70. M Customer Financing
73. N Rental Expense and Lease Commitments
73. O Stock-Based Compensation Plans
75. P Stock Repurchases
76. Q Retirement Plans
78. R Nonpension Postretirement Benefits
79. S Lines of Credit
80. T Sale and Securitization of Receivables
80. U Financial Instruments
82. V Subsequent Event
82. W Segment Information
84. X Geographic Areas
86. Five-Year Comparison of Selected Financial Data
86. Selected Quarterly Data
41.
<PAGE>
REPORT OF MANAGEMENT
International Business Machines Corporation and Subsidiary Companies
Responsibility for the integrity and objectivity of the financial information
presented in this Annual Report rests with IBM management. The accompanying
financial statements have been prepared in conformity with generally accepted
accounting principles, applying certain estimates and judgments as required.
IBM maintains an effective internal control structure. It consists, in part,
of organizational arrangements with clearly dened lines of responsibility and
delegation of authority, and comprehensive systems and control procedures. We
believe this structure provides reasonable assurance that transactions are
executed in accordance with management authorization, and that they are
appropriately recorded, in order to permit preparation of financial statements
in conformity with generally accepted accounting principles and to adequately
safeguard, verify and maintain accountability of assets. An important element
of the control environment is an ongoing internal audit program.
To assure the effective administration of internal control, we carefully
select and train our employees, develop and disseminate written policies and
procedures, provide appropriate communication channels, and foster an
environment conducive to the effective functioning of controls. We believe
that it is essential for the company to conduct its business affairs in
accordance with the highest ethical standards, as set forth in the IBM
Business Conduct Guidelines. These guidelines, translated into numerous
languages, are distributed to employees throughout the world, and
reemphasized through internal programs to assure that they are understood and
followed.
Price Waterhouse LLP, independent accountants, is retained to examine IBM's
financial statements. Its accompanying report is based on an examination
conducted in accordance with generally accepted auditing standards, including
a review of the internal control structure and tests of accounting procedures
and records.
The Audit Committee of the Board of Directors is composed solely of outside
directors, and is responsible for recommending to the Board the independent
accounting firm to be retained for the coming year, subject to stockholder
approval. The Audit Committee meets periodically and privately with the
independent accountants, with our internal auditors, as well as with IBM
management, to review accounting, auditing, internal control structure and
financial reporting matters.
/s/ Louis V. Gerstner, Jr. /s/ G. Richard Thoman
Louis V. Gerstner, Jr. G. Richard Thoman
Chairman of the Board and Senior Vice President
and and
Chief Executive Officer Chief Financial Officer
42.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
International Business Machines Corporation and Subsidiary Companies
To the Stockholders and Board of Directors of International Business Machines
Corporation:
In our opinion, the accompanying consolidated financial statements, appearing
on pages 56 through 85, present fairly, in all material respects, the
financial position of International Business Machines Corporation and its
subsidiaries at December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards, which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
January 20, 1997
43.
<PAGE>
MANAGEMENT DISCUSSION
International Business Machines Corporation and Subsidiary Companies
OVERVIEW
IBM's financial performance in 1996 reflects continued progress towards its
strategic goals of revenue growth, an expanded portfolio of industry-specific
customer solutions, especially through network computing, and an increasingly
competitive cost and expense structure.
The company reported record revenue of nearly $ 76 billion, 30 percent net
earnings growth over 1995 and ended the year with over $ 8 billion in cash.
The company also continued to align itself for strategic growth by investing
almost $ 20 billion in critical high-growth and advanced technology
businesses, research and development, acquisitions and repurchases of its
common shares.
The growth in revenue was principally due to the continued transition of
revenue mix to the company's high-growth businesses. Revenue from services,
personal computers and distributed software offerings grew strongly year over
year. At the same time, while System/390* revenue declined due to pricing
pressures, its total installed base grew nearly 25 percent, well above the 14
percent growth rate of just two years ago as customers continued to move to
integrated network solutions.
The company's results were also affected adversely by the continued weakness
of the European economy and the continued strengthening of the U.S. dollar.
Without the currency effect, year-to-year revenue growth would have been 9
percent compared with the reported growth of 6 percent.
LOOKING FORWARD
While excellent progress was made in 1996, the company must continue to
implement strategic actions to further improve its competitiveness. These
actions include an on-going focus on revenue growth and stable net income
margins, while at the same time maintaining a strong balance sheet and cash
flows for long-term growth.
44.
<PAGE>
MANAGEMENT DISCUSSION
International Business Machines Corporation and Subsidiary Companies
RESULTS OF OPERATIONS
(Dollars in millions except per share amounts) 1996 1995 1994
Revenue $ 75,947 $ 71,940 $ 64,052
Cost 45,408 41,573 38,768
-------- -------- --------
Gross profit 30,539 30,367 25,284
Gross profit margin 40.2% 42.2% 39.5%
Total expense 21,952 22,554 20,129
-------- -------- --------
Net earnings before income taxes $ 8,587 $ 7,813 $ 5,155
-------- -------- --------
-------- -------- --------
Net earnings $ 5,429 $ 4,178 $ 3,021
-------- -------- --------
-------- -------- --------
Net earnings per share of common stock $ 10.24 $ 7.23 $ 5.02
-------- -------- --------
-------- -------- --------
Revenue grew 5.6 percent as reported and 8.6 percent when currency impacts
are removed. This increase was primarily driven by the high-growth areas of
the company's product portfolio: services, personal computers and distributed
software offerings including those from Lotus Development Corporation (Lotus)
and Tivoli Systems, Inc. (Tivoli). The following table provides the company's
percent of revenue by category:
1996 1995 1994
Hardware sales 47.8% 49.5% 50.5%
Services 20.9 17.7 15.2
Software 17.2 17.6 17.7
Maintenance 9.2 10.3 11.3
Rentals and financing 4.9 4.9 5.3
-------- -------- --------
Total 100.0% 100.0% 100.0%
-------- -------- --------
-------- -------- --------
The overall gross profit margin at 40.2 percent decreased 2.0 points from
1995, following a 2.7 point increase in 1995 over 1994. The 1996 decline was
primarily a result of the company's continued shift to the higher growth
sources of revenue, most notably, services and personal computers. These
businesses have lower gross profit margins than the company's more
traditional high-end hardware offerings. The increase in 1995 was primarily
driven by improved margins in hardware sales resulting from cost improvements
across most major product lines.
The following table is provided for informational purposes only, to exclude
the effects of certain items on the company's net earnings.
<TABLE>
<CAPTION>
(Dollars in millions except per share amounts) 1996 1995* 1994
<S> <C> <C> <C>
Net earnings after tax as reported $ 5,429 $ 4,178 $ 3,021
Purchased in-process
research and development (pages 54 and 55) 435 1,840 -
Effects of Federal Systems Company (FSC) sale (page 55) - - (248)
Software amortization change - - 192
------- ------- -------
Adjusted net earnings $ 5,864 $ 6,018 $ 2,965
------- ------- -------
------- ------- -------
Adjusted net earnings per share of common stock $ 11.06 $ 10.46 $ 4.92
------- ------- -------
------- ------- -------
</TABLE>
*Reclassified to conform to 1996 presentation.
45.
<PAGE>
MANAGEMENT DISCUSSION
International Business Machines Corporation and Subsidiary Companies
HARDWARE SALES
(Dollars in millions) 1996 1995 1994
Revenue $ 36,316 $ 35,600 $32,344
Cost 23,396 21,862 21,300
-------- -------- --------
Gross profit $ 12,920 $13,738 $11,044
-------- -------- --------
-------- -------- --------
Gross profit margin 35.6% 38.6% 34.1%
Information on revenue by classes of similar products or services is included
in note W, "Segment Information," on pages 82 and 83. The product trends
addressed in this discussion and in that disclosure are indicative, in all
material respects, of hardware sales activity.
Revenue from hardware sales increased 2.0 percent from 1995, following an
increase of 10.1 percent in 1995 from 1994. Gross profit dollars from
hardware sales decreased 6.0 percent from 1995, following an increase of 24.4
percent in 1995 from 1994.
Revenue from servers decreased 1.4 percent from 1995, following a 9.0 percent
increase versus 1994. The 1996 decrease was primarily driven by lower revenue
from System/390, although total delivery of mainframe computing power,
including shipments placed with end-users through both operating leases and
service offerings, increased 49 percent as measured in MIPS (millions of
instructions per second) versus last year. The System/390 revenue decrease
was partially offset by higher revenue from AS/400*, RISC System/6000* and
personal computer servers. The 1995 increase reflected higher revenue across
all server products when compared to 1994 levels.
Personal system client revenue grew 13.8 percent from 1995, following a 15.1
percent increase in 1995 from 1994. The 1996 increase was driven by higher
revenue from personal computers, especially consumer products, partially
offset by lower revenue from RISC System/6000. The 1995 increase over 1994
resulted from higher revenue across all personal system client products.
Storage products revenue, including products sold primarily through the
Original Equipment Manufacturer (OEM) channel, decreased 4.1 percent in 1996
from 1995, following an increase of 4.8 percent in 1995 from 1994. The
decline in 1996 is a result of lower revenue associated with high-end storage
products due to continuing price competition. This decrease was partially
offset by strong revenue growth in hard disk drive (HDD) storage and tape
products when compared to 1995 levels. These product areas in 1996 accounted
for more revenue than high-end storage products. The 1995 increase versus
1994 was primarily driven by strong growth in HDD storage products, partially
offset by lower revenue from high-end storage and tape products.
OEM hardware revenue declined 9.1 percent in 1996 versus 1995, following a
35.5 percent increase in 1995 over 1994. The 1996 decrease was driven by
lower semiconductor revenue due to continuing industry-wide pricing
pressures.
46.
<PAGE>
MANAGEMENT DISCUSSION
International Business Machines Corporation and Subsidiary Companies
The decrease in the 1996 hardware sales gross profit margin was driven by the
mix of revenue to lower gross profit products, such as personal computers,
and by lower OEM semiconductor margins. The increase in the 1995 hardware
gross profit margin was driven by improved gross profit margins on
System/390, personal computers, RISC System/6000 servers and OEM products.
The overall hardware sales margin continues to be adversely impacted by
pricing pressures across all products.
SERVICES
(Dollars in millions) 1996 1995 1994
Revenue $ 15,873 $ 12,714 $ 9,715
Cost 12,647 10,042 7,769
-------- -------- -------
Gross profit $ 3,226 $ 2,672 $ 1,946
-------- -------- -------
-------- -------- -------
Gross profit margin 20.3% 21.0% 20.0%
Services revenue increased 24.8 percent in 1996 from 1995 and 30.9 percent in
1995 over 1994. These increases are primarily in the areas of managed
operations of systems and networks, systems integration design and
development, availability services and consulting engagements. In 1996, the
company signed services contracts worth more than $ 27 billion. To meet the
growing demands in its services businesses, the company hired more than
15,000 new employees while maintaining a consistent level of gross
profitability.
SOFTWARE
(Dollars in millions) 1996 1995 1994
Revenue $ 13,052 $ 12,657 $ 11,346
Cost 4,082 4,428 4,680
-------- -------- --------
Gross profit $ 8,970 $ 8,229 $ 6,666
-------- -------- --------
-------- -------- --------
Gross profit margin 68.7% 65.0% 58.8%
Software revenue increased 3.1 percent in 1996 from 1995, following an
increase of 11.6 percent in 1995 from 1994. The increase in 1996 was driven
by distributed software offerings including Lotus Notes*, cc:Mail* and
systems management software from Tivoli, partially offset by lower host-based
computer software revenue associated with System/390 and AS/400. The increase
in 1995 was primarily due to revenue from Lotus products in the second half
of 1995, after the acquisition.
Software gross profit dollars increased 9.0 percent in 1996 from 1995,
following an increase of 23.4 percent in 1995 from 1994. The increase in 1995
from 1994 was affected by a change in the amortization period for software
products in 1994. Excluding the effect of this change, the gross profit
dollars would have increased 18.2 percent. The increase in gross profit
dollars in both 1996 and 1995 was driven primarily by the company's
continuing shift towards a more iterative software development process. As a
result, a larger percentage of software development spending was expensed,
and less was capitalized ($ .3 billion in 1996, compared to $ .8 billion in
1995), yielding lower costs of amortization.
47.
<PAGE>
MANAGEMENT DISCUSSION
International Business Machines Corporation and Subsidiary Companies
Maintenance
(Dollars in millions) 1996 1995 1994
Revenue $ 6,981 $ 7,409 $ 7,222
Cost 3,659 3,651 3,635
------- ------- -------
Gross profit $ 3,322 $ 3,758 $ 3,587
------- ------- -------
------- ------- -------
Gross profit margin 47.6% 50.7% 49.7%
Maintenance revenue decreased 5.8 percent in 1996 from 1995, following an
increase of 2.6 percent in 1995 from 1994. Gross profit dollars decreased
11.6 percent, following an increase of 4.8 percent in 1995 from 1994. Revenue
and gross profit margins in 1996 were lower due to continued price reductions.
Rentals and Financing
(Dollars in millions) 1996 1995 1994
Revenue $ 3,725 $ 3,560 $ 3,425
Cost 1,624 1,590 1,384
------- ------- -------
Gross profit $ 2,101 $ 1,970 $ 2,041
------- ------- -------
------- ------- -------
Gross profit margin 56.4% 55.4% 59.6%
Rentals and financing revenue increased 4.6 percent in 1996 from 1995,
following an increase of 3.9 percent in 1995 over 1994. In both 1996 and
1995, revenue increased as new originations of operating leases for high-end
products outpaced the expiration of older leases. The mix of operating lease
originations and hardware sales of these products remained constant year to
year. Gross profit dollars increased 6.6 percent from 1995, following a
decline of 3.4 percent in 1995 from 1994. The increase was primarily a result
of higher margins on operating leases and lower interest rates. The decrease
in 1995 was a reflection of both declining volumes and rental prices on
high-end products. The financing results are discussed in more detail in note
M, "Customer Financing," on pages 70 through 72.
48.
<PAGE>
MANAGEMENT DISCUSSION
International Business Machines Corporation and Subsidiary Companies
OPERATING EXPENSES
(Dollars in millions) 1996 1995* 1994
Selling, general and administrative $ 16,854 $ 16,766 $ 15,916
Percentage of revenue 22.2% 23.3% 24.8%
Research, development and engineering $ 4,654 $ 4,170 $ 4,363
Percentage of revenue 6.1% 5.8% 6.8%
Purchased in-process research and development $ 435 $ 1,840 $ -
*Reclassified to conform to 1996 presentation.
Selling, general and administrative (SG&A) expense remained essentially flat
in 1996 compared to 1995. The company's shift towards investments in more
variable based high-yield programs, such as advertising, business partner
programs, expenditures associated with new acquisitions and investments and
its continued focus on reducing fixed infrastructure costs yielded a 1.1
point improvement in the expense to revenue ratio in 1996. The 1996 and 1995
results included $ 669 million and $ 626 million, respectively, associated
with infrastructure reductions. The 1995 results also included a one-time
gain of $ 175 million due to the settlement of certain contractual
obligations resulting from the 1994 FSC sale. The company continues to focus
on productivity, reengineering, expense controls and prioritization of
spending in order to maintain competitive expense to revenue levels.
Research, development and engineering expense increased 11.6 percent in 1996
from 1995, following a decrease of 4.4 percent in 1995 from 1994. The
increase in 1996 is primarily a result of the company's change in the
software development process as discussed in the Software section on page 47.
In addition, the on-going activities of Lotus and Tivoli are included in 1996
results, as compared to 1995 which included only Lotus activity from July to
December 1995.
Purchased in-process research and development in 1996 and 1995 was primarily
associated with the Tivoli and Lotus acquisitions, respectively.
Provision for Income Taxes
The provision for income taxes resulted in an effective tax rate of 37
percent for 1996, as compared to the 1995 effective tax rate of 47 percent.
Without the effect of expensing the purchased in-process research and
development with no corresponding tax effect, the 1996 and 1995 effective tax
rates would have been 35 percent and 38 percent, respectively. The reduction
in the 1996 tax rate is due to the company's continued expansion into markets
with lower effective tax rates, as well as the use of foreign tax credits to
offset the tax effect of dividend repatriation from non-U.S. affiliates.
The company accounts for income taxes under Statement of Financial Accounting
Standards (SFAS) 109, "Accounting for Income Taxes," which provides that a
valuation allowance should be recognized to reduce the deferred tax asset to
the amount that is more likely than not to be realized. In assessing the
likelihood of realization, management considered estimates of future taxable
income, which are based primarily on recent financial performance.
49.
<PAGE>
MANAGEMENT DISCUSSION
International Business Machines Corporation and Subsidiary Companies
Fourth Quarter
For the quarter ended December 31, 1996, the company had revenue of $ 23.1
billion, a 5.6 percent increase over the same period of 1995. Net earnings in
the fourth quarter were $ 2,023 million ($ 3.93 per common share), compared
to net earnings of $ 1,711 million ($ 3.09 per common share) in the fourth
quarter of 1995.
Fourth-quarter revenue increased in the United States, Asia-Pacific and Latin
America, and declined in Canada. Specifically, revenue from the United States
increased 12.1 percent year over year to $ 8.8 billion. Revenue from the
company's Europe, Middle East, and Africa unit was $ 8.1 billion, essentially
flat from 1995 to 1996. Asia-Pacific revenue grew 6.2 percent to $ 4.3
billion, while revenue in Latin America was $ 1.1 billion, an increase of 3.9
percent. Revenue from Canada declined 2.4 percent to $ .8 billion.
Currency had an approximately 3 percentage point negative impact on the
company's revenue results in the fourth quarter. This compares with an
approximately 2 percentage point positive revenue effect in the fourth
quarter of 1995. At constant currency in the fourth quarter of 1996, European
revenue would have grown 3 percent and Asia-Pacific revenue would have
increased 14 percent.
Hardware sales revenue was $ 11.7 billion, an increase of 1.7 percent
compared to the fourth quarter of 1995. Personal computer revenue grew year
over year in both commercial and consumer categories. AS/400, storage product
and networking hardware revenue also increased. System/390 and OEM hardware
revenue declined, while RISC System/6000 revenue was essentially flat.
Services revenue was $ 5.0 billion, an increase of 22.3 percent compared to
the fourth quarter of last year. This increase reflects the continued
strength across the company's services categories, including managed
operations of systems and networks, systems integration design and
development and availability services.
Software revenue grew 3.9 percent year over year to $ 3.7 billion. The
increase was driven by strong growth of Lotus and Tivoli distributed software
products, offset by lower host-based computer software revenue.
Maintenance revenue decreased 5.8 percent from 1995's fourth quarter, due to
continuing competitive pricing pressures. Rentals and financing grew 9.4
percent from 1995's fourth quarter due to increased operating leases of
high-end products.
The company's overall gross profit margin was 40.3 percent in the fourth
quarter, compared to 41.7 percent in the same period of 1995. This decrease
was a result of the continuing shift of revenue to lower margin offerings
including services and personal systems.
Total expenses declined 2.3 percent year over year, while the
expense-to-revenue ratio decreased from 29.8 percent to 27.8 percent. This
decline reflects the continuing efforts to shift toward investments in more
variable based spending programs and reductions in infrastructure
expenditures.
50.
<PAGE>
MANAGEMENT DISCUSSION
International Business Machines Corporation and Subsidiary Companies
Financial Condition
The company for the third consecutive year generated over $ 10 billion in
cash flow from operations which funded significant investments in plant,
rental machines and other property, strategic acquisitions, such as Tivoli
and Object Technology International, Inc., as well as common share
repurchases. The company ended 1996 with $ 8.1 billion in cash, up $ .4
billion from year-end 1995.
The company has access to global funding sources. During 1996, the company
issued debt in a variety of geographies to a diverse set of investors.
Significant funding was issued in the United States, Japan and Europe.
Funding was obtained across the range of debt maturities from short-term
commercial paper to long-term debt. In December 1996, the company issued $
850 million of debt which matures in 100 years. More information about
company debt is provided in note F, "Debt," on pages 64 and 65.
In December 1993, the company entered into a $ 10 billion committed global
credit facility to enhance the liquidity of funds. This facility was amended
in March 1996, and extended to March 2001. As of December 31, 1996, $ 9.4
billion was unused and available.
At year-end 1996, the company had an outstanding balance of $ 1.1 billion of
assets under management from the securitization of loans, leases and trade
receivables, compared to the year-end 1995 level of $ 1.2 billion. The
company retains access to additional funds through securitization, as
discussed in note T, "Sale and Securitization of Receivables," on page 80.
The rating agencies continued their review of the company's debt. In December
1996, Fitch Investors Service upgraded its credit ratings for the company and
its rated subsidiaries' senior long-term debt to AA- from A+. Fitch also
upgraded the company's preferred stock to A+ from A. They continue to rate
commercial paper at F-1+.
In January 1997, Standard and Poor's revised its outlook on the company and
its rated subsidiaries to positive from stable and affirmed its ratings of
senior debt at A, commercial paper at A-1, and preferred stock at A-.
Moody's Investors Service rates the senior long-term debt of the company and
its rated subsidiaries as A1, the commercial paper as Prime-1, and the
company's preferred stock as "a1."
Duff & Phelps rates the company and its rated subsidiaries' senior long-term
debt as A+, commercial paper as Duff 1, and the company's preferred stock as A.
51.
<PAGE>
MANAGEMENT DISCUSSION
International Business Machines Corporation and Subsidiary Companies
Cash Flows
The company's cash flows from operating, investing and financing activities
as prescribed by generally accepted accounting principles and reflected in
the Consolidated Statement of Cash Flows on page 58, are summarized in the
following table:
(Dollars in millions) 1996 1995 1994
Net cash provided from (used in):
Operating activities $ 10,275 $ 10,708 $ 11,793
Investing activities (5,723) (5,052) (3,426)
Financing activities (3,952) (6,384) (6,412)
Effect of exchange rate changes
on cash and cash equivalents (172) 65 106
-------- -------- --------
Net change in cash and cash equivalents $ 428 $ (663) $ 2,061
-------- -------- --------
-------- -------- --------
Working Capital
At December 31:
(Dollars in millions) 1996 1995
Current assets $ 40,695 $ 40,691
Current liabilities 34,000 31,648
-------- --------
Working capital $ 6,695 $ 9,043
-------- --------
-------- --------
Current ratio 1.20:1 1.29:1
-------- --------
-------- --------
The company continued to maintain a strong current ratio of 1.20 to 1.
Current assets remained essentially flat due to aggressive inventory and
accounts receivable management. The company's overall inventories declined $
.5 billion driven primarily by inventory management process improvements,
particularly in personal computers. While trade accounts receivable was
essentially unchanged from December 31, 1995, collections improved, resulting
in a nearly $ 1 billion reduction, which offset record fourth-quarter revenue.
Current liabilities were higher primarily due to increases in short-term debt
associated with customer financing. Short-term borrowings were used to take
advantage of generally more favorable interest rates.
Investments
The company's investments for plant, rental machines and other property were
$ 5.9 billion for 1996, an increase of $ 1.1 billion from 1995. The increase
reflects continued investment in the company's rapidly growing services
business, particularly management of customers' information technology, as
well as storage products and the advanced technology area of microelectronics.
In addition to software development expenses included in research,
development and engineering, the company capitalized $ .3 billion of software
costs during 1996 versus $ .8 billion capitalized in 1995. Amortization of
capitalized software costs amounted to $ 1.4 billion for 1996, a decrease of
$ .3 billion from 1995.
Investments and sundry assets were $ 21.6 billion at the end of 1996, an
increase of $ 1.0 billion from 1995, primarily the result of increases in
prepaid pension assets, the company's investment in business alliances and
goodwill associated with strategic acquisitions, primarily Tivoli. See note
E, "Investments and Sundry Assets," on page 64 for additional information.
52.
<PAGE>
MANAGEMENT DISCUSSION
International Business Machines Corporation and Subsidiary Companies
Debt and Equity
(Dollars in millions) 1996 1995
"Core" debt $ 2,202 $ 1,907
Customer financing debt 20,627 19,722
-------- --------
Total debt $ 22,829 $ 21,629
-------- --------
-------- --------
Stockholders' equity $ 21,628 $ 22,423
-------- --------
-------- --------
Debt/capitalization 51.4% 49.1%
"Core" debt/capitalization 10.7% 8.5%
Customer financing debt/equity 6.3:1 6.3:1
Total debt increased $ 1.2 billion from year-end 1995, driven by an increase
of $ .9 billion in debt to support the growth in customer financing assets
and $ .3 billion in "core" debt. The company's "core" debt to capitalization
ratio is at a conservative 10.7 percent and the customer financing debt to
equity has been maintained at 6.3 to 1.
Stockholders' equity declined 3.5 percent to $ 21.6 billion from December 31,
1995. The company's strong net earnings were reduced by the company's
significant common share repurchases, dividend payments and the stronger
dollar effect on the company's foreign net assets. See page 59, "Consolidated
Statement of Stockholders' Equity," for additional information.
Currency Rate Fluctuations
Since approximately 84 percent of the company's non-U.S. revenue was derived
from affiliates operating in local currency environments, the company's
results are affected by changes in the relative values of non-U.S. currencies
to the U.S. dollar. Worldwide currencies weakened versus the U.S. dollar in
1996, which resulted in assets and liabilities denominated in local
currencies being translated into fewer dollars. The currency rate changes
also resulted in an unfavorable impact on revenue of approximately 3 percent
in 1996, compared to a favorable impact in 1995 and 1994 of 4 percent and 2
percent, respectively.
In high-inflation environments, primarily parts of Latin America, translation
adjustments are reflected in period income, as required by SFAS 52, "Foreign
Currency Translation." Generally, the company minimizes currency risk in
these countries by linking prices and contracts to U.S. dollars, by financing
operations locally and through foreign currency hedge contracts.
The company uses a variety of financial hedging instruments to minimize
currency risks related to customer financing transactions and the
repatriation of dividends and royalties. Further discussion on currency and
hedging appears in note U, "Financial Instruments," on pages 80 through 82.
53.
<PAGE>
MANAGEMENT DISCUSSION
International Business Machines Corporation and Subsidiary Companies
Financing Risks
Customer financing is an integral part of the company's total worldwide
offerings. Financial results of customer financing can be found in note M,
"Customer Financing," on pages 70 through 72. Inherent in customer financing
are certain risks: credit, interest rate, currency and residual value. The
company manages credit risk through comprehensive credit evaluations and
pricing practices. To manage the risks associated with an uncertain interest
rate environment, the company pursues a funding strategy of substantially
matching the terms of its debt with the terms of its assets. Currency risks
are managed by denominating liabilities in the same currency as the assets.
Residual value risk is managed by developing projections of future equipment
values at lease inception, reevaluating these projections periodically, and
effectively deploying remarketing capabilities to recover residual values and
potentially earn a profit. In 1996 and 1995, the remarketing effort generated
profits. The following table depicts an approximation of the unguaranteed
residual value maturities for the company's sales-type leases, as well as a
projection of net book value of operating leases at the end of the lease
terms as of December 31, 1994, 1995 and 1996. The following table excludes
approximately $ 50 million of estimated residual value associated with
non-information technology equipment.
<TABLE>
<CAPTION>
Total Run Out of 1996 Residual Value Balance
------------------------- --------------------------------------
(Dollars in millions) 1994 1995 1996 1997 1998 1999 2000 and
beyond
<S> <C> <C> <C> <C> <C> <C> <C>
Sales-type leases $ 535 $ 470 $ 471 $ 130 $ 155 $ 160 $ 26
Operating leases 140 295 480 160 165 140 15
----- ----- ----- ----- ----- ----- ----
Total residual value $ 675 $ 765 $ 951 $ 290 $ 320 $ 300 $ 41
----- ----- ----- ----- ----- ----- ----
----- ----- ----- ----- ----- ----- ----
</TABLE>
Acquisitions and Divestitures
On March 1, 1996, the company acquired all outstanding shares of Tivoli for
approximately $ 800 million ($ 716 million in net cash). On July 5, 1995, the
company acquired all outstanding shares of Lotus for approximately $ 3.2
billion ($ 2.9 billion in net cash). The company engaged a nationally
recognized, independent appraisal firm to express an opinion on the fair
market value of the assets of each of the acquisitions to serve as a basis
for allocation of the purchase price to the various classes of assets. The
company allocated the total purchase prices as follows:
<TABLE>
<CAPTION>
1996 1995
(Dollars in millions) Tivoli Lotus
<S> <C> <C>
Tangible and intangible net assets $ 140 $ 1,157
Purchased in-process research and development 417 1,840
Goodwill 280 540
Deferred tax liabilities related to identifiable intangible assets (37) (291)
----- -------
Total $ 800 $ 3,246
----- -------
----- -------
</TABLE>
Purchased in-process research and development represented the value of
software products still in the development stage and not considered to have
reached technological feasibility.
54.
<PAGE>
MANAGEMENT DISCUSSION
International Business Machines Corporation and Subsidiary Companies
In addition, the acquisition of Object Technology International, Inc.,
resulted in a valuation of purchased in-process research and development
amounting to $ 18 million, bringing the total amount of purchased in-process
research and development in 1996 to $ 435 million. In accordance with
applicable accounting rules, the $ 435 million was expensed upon acquisition
in the first quarter of 1996 and the $ 1,840 million was expensed upon
acquisition in the third quarter of 1995.
The sale of FSC to Loral Corporation for $ 1.503 billion in cash had a
closing date of March 1, 1994, and was effective January 1, 1994. This
transaction resulted in an after-tax net gain of $ 248 million ($ .43 per
common share) in the company's first-quarter 1994 results. In the fourth
quarter of 1995, the company recorded a before-tax gain of $ 175 million due
to the conclusion of contractual obligations between the company and Loral
Corporation.
Employees
<TABLE>
<CAPTION>
Percentage Changes
1996 1995 1994 1996-95 1995-94
<S> <C> <C> <C> <C> <C>
IBM/wholly owned subsidiaries 240,615 225,347 219,839 6.8 2.5
Less than wholly owned subsidiaries 28,033 26,868 23,200 4.3 15.8
Complementary 37,000 38,000 35,000 (2.6) 8.6
</TABLE>
As of December 31, 1996, employees of IBM and its wholly owned subsidiaries
increased 15,268 from 1995 mainly due to hiring in high-growth areas of the
business - services, personal computers and Lotus, as well as expansion in
emerging geographic markets and acquisition of business entities such as
Tivoli.
The moderate growth in less than wholly owned subsidiaries was due primarily
to investments in the company's growing worldwide services business, as well
as in emerging geographic markets such as China.
The company's complementary work force comprises equivalent full-time
employees hired under temporary, part-time and limited-term employment
arrangements to meet specific business needs in a flexible and cost-effective
manner.
55.
<PAGE>
CONSOLIDATED STATEMENT OF EARNINGS
International Business Machines Corporation and Subsidiary Companies
(Dollars in millions except per share amounts)
<TABLE>
<CAPTION>
For the year ended December 31: Notes 1996 1995* 1994
<S> <C> <C> <C> <C>
Revenue:
Hardware sales $ 36,316 $ 35,600 $ 32,344
Services 15,873 12,714 9,715
Software 13,052 12,657 11,346
Maintenance 6,981 7,409 7,222
Rentals and financing M 3,725 3,560 3,425
- ---------------------------------------------------------------------------------------
Total revenue 75,947 71,940 64,052
- ---------------------------------------------------------------------------------------
Cost:
Hardware sales 23,396 21,862 21,300
Services 12,647 10,042 7,769
Software 4,082 4,428 4,680
Maintenance 3,659 3,651 3,635
Rentals and financing 1,624 1,590 1,384
- ---------------------------------------------------------------------------------------
Total cost 45,408 41,573 38,768
- ---------------------------------------------------------------------------------------
Gross profit 30,539 30,367 25,284
- ---------------------------------------------------------------------------------------
Operating expenses:
Selling, general and administrative H 16,854 16,766 15,916
Research, development and engineering I 4,654 4,170 4,363
Purchased in-process research and development I 435 1,840 -
- ---------------------------------------------------------------------------------------
Total operating expenses 21,943 22,776 20,279
- ---------------------------------------------------------------------------------------
Operating income 8,596 7,591 5,005
Other income, principally interest 707 947 1,377
Interest expense J 716 725 1,227
- ---------------------------------------------------------------------------------------
Earnings before income taxes 8,587 7,813 5,155
Provision for income taxes G 3,158 3,635 2,134
- ---------------------------------------------------------------------------------------
Net earnings 5,429 4,178 3,021
Preferred stock dividends and transaction costs 20 62 84
- ---------------------------------------------------------------------------------------
Net earnings applicable
to common shareholders $ 5,409 $ 4,116 $ 2,937
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Net earnings per share of common stock $ 10.24 $ 7.23 $ 5.02
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Average number of common shares outstanding:
1996 - 528,352,094; 1995 - 569,384,029; 1994 - 584,958,699
</TABLE>
*Reclassified to conform to 1996 presentation.
The notes on pages 60 through 85 are an integral part of this statement.
56.
<PAGE>
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
International Business Machines Corporation and Subsidiary Companies
<TABLE>
<CAPTION>
(Dollars in millions)
At December 31: Notes 1996 1995
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 7,687 $ 7,259
Marketable securities U 450 442
Notes and accounts receivable - trade, net of allowances 16,515 16,450
Sales-type leases receivable 5,721 5,961
Other accounts receivable 931 991
Inventories C 5,870 6,323
Prepaid expenses and other current assets 3,521 3,265
- ------------------------------------------------------------------------------------------------
Total current assets 40,695 40,691
- ------------------------------------------------------------------------------------------------
Plant, rental machines and other property D 41,893 43,981
Less: Accumulated depreciation 24,486 27,402
- ------------------------------------------------------------------------------------------------
Plant, rental machines and other property - net 17,407 16,579
- ------------------------------------------------------------------------------------------------
Software, less accumulated amortization
(1996, $ 12,199; 1995, $ 11,276) 1,435 2,419
Investments and sundry assets E 21,595 20,603
- ------------------------------------------------------------------------------------------------
Total assets $ 81,132 $ 80,292
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Taxes $ 3,029 $ 2,634
Short-term debt F 12,957 11,569
Accounts payable 4,767 4,511
Compensation and benefits 2,950 2,914
Deferred income 3,640 3,469
Other accrued expenses and liabilities 6,657 6,551
- ------------------------------------------------------------------------------------------------
Total current liabilities 34,000 31,648
- ------------------------------------------------------------------------------------------------
Long-term debt F 9,872 10,060
Other liabilities K 14,005 14,354
Deferred income taxes G 1,627 1,807
- ------------------------------------------------------------------------------------------------
Total liabilities 59,504 57,869
- ------------------------------------------------------------------------------------------------
Contingencies L
Stockholders' equity:
Preferred stock, par value $.01 per share -
shares authorized: 150,000,000
shares issued: 1996 - 2,610,711; 1995 - 2,610,711 P 253 253
Common stock, par value $1.25 per share -
shares authorized: 750,000,000
shares issued: 1996 - 509,070,542; 1995 - 548,199,013 P&V 7,752 7,488
Retained earnings 11,189 11,630
Translation adjustments 2,401 3,036
Treasury stock, at cost (shares: 1996 - 1,089,533; 1995 - 424,583) (135) (41)
Net unrealized gain on marketable securities 168 57
- ------------------------------------------------------------------------------------------------
Total stockholders' equity 21,628 22,423
- ------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 81,132 $ 80,292
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
The notes on pages 60 through 85 are an integral part of this statement.
57.
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
International Business Machines Corporation and Subsidiary Companies
(Dollars in millions)
<TABLE>
<CAPTION>
For the year ended December 31: 1996 1995 1994
<S> <C> <C> <C>
Cash flow from operating activities:
Net earnings $ 5,429 $ 4,178 $ 3,021
Adjustments to reconcile net earnings to cash
provided from operating activities:
Depreciation 3,676 3,955 4,197
Amortization of software 1,336 1,647 2,098
Effect of restructuring charges (1,491) (2,119) (2,772)
Purchased in-process research and development 435 1,840 -
Deferred income taxes 11 1,392 825
Gain on disposition of fixed and other assets (300) (339) (11)
Other changes that (used) provided cash:
Receivables (650) (530) 653
Inventories 196 107 1,518
Other assets (980) (1,100) 187
Accounts payable 319 659 305
Other liabilities 2,294 1,018 1,772
- -------------------------------------------------------------------------------------------
Net cash provided from operating activities 10,275 10,708 11,793
- -------------------------------------------------------------------------------------------
Cash flow from investing activities:
Payments for plant, rental machines and other property (5,883) (4,744) (3,078)
Proceeds from disposition of plant, rental machines
and other property 1,314 1,561 900
Acquisition of Lotus Development Corporation - net - (2,880) -
Acquisition of Tivoli Systems, Inc. - net (716) - -
Investment in software (295) (823) (1,361)
Purchases of marketable securities and other investments (1,613) (1,315) (3,866)
Proceeds from marketable securities and other investments 1,470 3,149 2,476
Proceeds from the sale of Federal Systems Company - - 1,503
- -------------------------------------------------------------------------------------------
Net cash used in investing activities (5,723) (5,052) (3,426)
- -------------------------------------------------------------------------------------------
Cash flow from financing activities:
Proceeds from new debt 7,670 6,636 5,335
Short-term borrowings less than 90 days - net (919) 2,557 (1,948)
Payments to settle debt (4,992) (9,460) (9,445)
Preferred stock transactions - net - (870) (10)
Common stock transactions - net (5,005) (4,656) 318
Cash dividends paid (706) (591) (662)
- -------------------------------------------------------------------------------------------
Net cash used in financing activities (3,952) (6,384) (6,412)
- -------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and
cash equivalents (172) 65 106
- -------------------------------------------------------------------------------------------
Net change in cash and cash equivalents 428 (663) 2,061
Cash and cash equivalents at January 1 7,259 7,922 5,861
- -------------------------------------------------------------------------------------------
Cash and cash equivalents at December 31 $ 7,687 $ 7,259 $ 7,922
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Supplemental data:
Cash paid during the year for:
Income taxes $ 2,229 $ 1,453 $ 649
Interest $ 1,563 $ 1,720 $ 2,132
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</TABLE>
The notes on pages 60 through 85 are an integral part of this statement.
58.
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
International Business Machines Corporation and Subsidiary Companies
<TABLE>
<CAPTION>
Net
(Dollars in millions) Unrealized
Gain on
Preferred Common Retained Translation Treasury Marketable
Stock Stock Earnings Adjustments Stock Securities Total
<S> <C> <C> <C> <C> <C> <C> <C>
1994
Stockholders' equity, January 1, 1994 $ 1,091 $ 6,980 $ 10,009 $ 1,658 $ - $ - $ 19,738
Net earnings 3,021 3,021
Cash dividends declared - common stock (585) (585)
Cash dividends declared - preferred stock (84) (84)
Preferred stock purchased and retired
(105,000 shares) (10) (10)
Common stock issued under employee
plans (6,120,255 shares) 318 318
Common stock issued to U.S. pension
plan fund (671,030 shares) 39 39
Purchases (1,401,740 shares) and sales
(934,919 shares) of treasury stock
under employee plans - net (9) (34) (43)
Tax reductions - employee plans 5 5
Other 1,014 1,014
- ------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity, December 31, 1994 1,081 7,342 12,352 2,672 (34) - 23,413
1995
Net earnings 4,178 4,178
Cash dividends declared - common stock (572) (572)
Cash dividends declared - preferred stock (20) (20)
Common stock purchased and retired
(50,906,300 shares) (655) (4,209) (4,864)
Preferred stock purchased and retired
(8,534,289 shares) (828) (42) (870)
Common stock issued under employee
plans (4,271,948 shares) 279 279
Purchases (4,662,047 shares) and sales
(4,706,964 shares) of treasury stock
under employee plans - net (57) (7) (64)
Conversion of debentures (6,653,121 shares) 471 471
Tax reductions - employee plans 51 51
Other 364 57 421
- ------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity, December 31, 1995 253 7,488 11,630 3,036 (41) 57 22,423
1996
Net earnings 5,429 5,429
Cash dividends declared - common stock (686) (686)
Cash dividends declared - preferred stock (20) (20)
Common stock purchased and retired
(48,975,700 shares) (710) (5,046) (5,756)
Common stock issued under employee
plans (9,847,229 shares) 811 (13) 798
Purchases (4,457,166 shares) and sales
(3,792,216 shares) of treasury stock
under employee plans - net (105) (94) (199)
Tax reductions - employee plans 163 163
Other (635) 111 (524)
- ------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity, December 31, 1996 $ 253 $ 7,752 $ 11,189 $ 2,401 $ (135) $ 168 $ 21,628
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The notes on pages 60 through 85 are an integral part of this statement.
59.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
A Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of International
Business Machines Corporation and its majority owned subsidiary companies.
Investments in business entities in which IBM does not have control, but has
the ability to exercise significant influence over operating and financial
policies (generally 20-50 percent ownership), are accounted for by the equity
method. Other investments are accounted for by the cost method.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the consolidated financial statements and
accompanying disclosures. Although these estimates are based on management's
best knowledge of current events and actions the company may undertake in the
future, actual results ultimately may differ from the estimates.
Revenue
Revenue from hardware sales or sales-type leases is recognized when the
product is shipped. Revenue from one-time-charge licensed software is
recognized when the program is shipped with an appropriate deferral for
post-contract customer support. This deferral is earned over the support
period. Revenue from monthly software licenses is recognized as license fees
accrue; from maintenance and services over the contractual period or as the
services are performed; from rentals and operating leases, monthly as the
fees accrue; and from financing at level rates of return over the term of the
lease or receivable. Revenue is reduced for estimated customer returns and
allowances.
Income Taxes
Income tax expense is based on reported earnings before income taxes.
Deferred income taxes reflect the impact of temporary differences between
assets and liabilities recognized for financial reporting purposes and such
amounts recognized for tax purposes. In accordance with SFAS 109, "Accounting
for Income Taxes," these deferred taxes are measured by applying currently
enacted tax laws.
Translation of Non-U.S. Currency Amounts
Assets and liabilities of non-U.S. subsidiaries that operate in a local
currency environment are translated to U.S. dollars at year-end exchange
rates. Income and expense items are translated at average rates of exchange
prevailing during the year. Translation adjustments are accumulated in a
separate component of stockholders' equity. Inventories and plant, rental
machines and other non-monetary assets and liabilities of non-U.S.
subsidiaries and branches that operate in U.S. dollars, or whose economic
environment is highly inflationary, are translated at approximate exchange
rates prevailing when acquired. All other assets and liabilities are
translated at year-end exchange rates. Inventories charged to cost of sales
and depreciation are translated at historical exchange rates. All other
income and expense items are translated at average rates of exchange
prevailing during the year. Gains and losses that result from translation are
included in earnings.
60.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
Financial Instruments
In the normal course of business, the company enters into a variety of
derivative financial instruments solely for the purpose of currency exchange
rate and interest rate risk management. Refer to note U, "Financial
Instruments," on pages 80 though 82 for descriptions of these financial
instruments, including the methods used to account for them.
In assessing the fair value of its financial instruments, both derivative and
non-derivative, the company uses a variety of methods and assumptions, which
are based on market conditions and risks existing at each balance sheet date.
Quoted market prices or dealer quotes for the same or similar instrument were
used for the majority of marketable securities, long-term investments and
long-term debt. Other techniques, such as option pricing models, estimated
discounted value of future cash flows, replacement cost and termination cost,
have been used to determine fair value for the remaining financial
instruments. These values represent a general approximation of possible value
and may never actually be realized.
Cash Equivalents
All highly liquid investments with a maturity of three months or less at date
of purchase are carried at fair value and considered to be cash equivalents.
Inventories
Raw materials, work in process and finished goods are stated at the lower of
average cost or market.
Depreciation
Plant, rental machines and other property are carried at cost, and
depreciated over their estimated useful lives using the straight-line method.
Software
Costs related to the conceptual formulation and design of licensed programs
are expensed as research and development. Costs incurred subsequent to
establishment of technological feasibility to produce the finished product
are capitalized. The annual amortization of the capitalized amounts is the
greater of the amount computed based on the estimated revenue distribution
over the products' revenue-producing lives, or the straight-line method, and
is applied over periods ranging up to four years. Periodic reviews are
performed to ensure that unamortized program costs remain recoverable from
future revenue. Costs to support or service licensed programs are charged
against income as incurred, or when related revenue is recognized, whichever
occurs first.
Retirement Plans and Nonpension Postretirement Benefits
Current service costs of retirement plans and postretirement healthcare and
life insurance benefits are accrued in the period. Prior service costs
resulting from amendments to the plans are amortized over the average
remaining service period of employees expected to receive benefits.
61
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
Goodwill
Goodwill is charged to earnings on a straight-line basis over the periods
estimated to be benefited, currently not exceeding five years.
Common Stock
Common stock refers to the $ 1.25 par value capital stock as designated in
the company's Certificate of Incorporation. Net earnings per common share
amount is computed by dividing earnings after deduction of preferred stock
dividends and transaction costs by the average number of common shares
outstanding in the period.
B Accounting Changes
The company implemented new accounting standards in 1996, 1995 and 1994. None
of these standards had a material effect on the financial position or results
of operations of the company.
In 1996, the company adopted the American Institute of Certified Public
Accountants Statement of Position (SOP) 96-1, "Environmental Remediation
Liabilities." This SOP provides authoritative guidance on the recognition,
measurement, display and disclosure of environmental remediation liabilities.
In 1996, the company implemented the disclosure-only provisions of SFAS 123,
"Accounting for Stock-Based Compensation." See note O, "Stock-Based
Compensation Plans," on pages 73 through 75 for further information.
In June 1996, the Financial Accounting Standards Board issued SFAS 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." This standard provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities. While the standard requires implementation in
1997, the company is already generally in compliance.
Effective January 1, 1995, the company implemented SFAS 114, "Accounting by
Creditors for Impairment of a Loan," and SFAS 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures." These
standards prescribe impairment measurements and reporting related to certain
loans.
The company implemented SFAS 116, "Accounting for Contributions Received and
Contributions Made," effective January 1, 1995. This standard requires that
the fair value of contributions, including unconditional promises to give, be
recognized as expense in the period made.
In 1995, the company implemented SFAS 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This standard
prescribes the method for asset impairment evaluation for long-lived assets
and certain identifiable intangibles that are either held and used or to be
disposed of. The company was generally in conformance with this standard
prior to adoption.
62.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
In 1995, the company adopted the American Institute of Certified Public
Accountants SOP 93-7, "Reporting on Advertising Costs." This SOP provides
guidance on financial reporting of advertising costs in annual financial
statements. The company was generally in conformance with this SOP prior to
adoption. See note H, "Selling and Advertising," on page 68 for additional
disclosure on advertising expenses.
Effective January 1, 1994, the company implemented SFAS 115, "Accounting for
Certain Investments in Debt and Equity Securities." This standard addresses
the accounting and reporting for investments in equity securities that have
readily determinable fair values and for all investments in debt securities.
See note U, "Financial Instruments," on pages 80 though 82 for further
information.
C Inventories
At December 31:
(Dollars in millions) 1996 1995
Finished goods $ 1,413 $ 1,241
Work in process 4,377 4,990
Raw materials 80 92
-------- --------
Total $ 5,870 $ 6,323
-------- --------
-------- --------
D Plant, Rental Machines and Other Property
At December 31:
(Dollars in millions) 1996 1995
Land and land improvements $ 1,208 $ 1,348
Buildings 12,073 12,653
Plant, laboratory and office equipment 24,824 26,658
-------- --------
38,105 40,659
Less: Accumulated depreciation 22,935 25,604
-------- --------
15,170 15,055
Rental machines 3,788 3,322
Less: Accumulated depreciation 1,551 1,798
-------- --------
2,237 1,524
Total $ 17,407 $ 16,579
-------- --------
-------- --------
63.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
E Investments and Sundry Assets
At December 31:
(Dollars in millions) 1996 1995
Net investment in sales-type leases* $ 13,345 $ 14,007
Less: Current portion - net 5,721 5,961
-------- --------
7,624 8,046
Deferred taxes 3,246 3,376
Prepaid pension cost 3,324 2,535
Non-current customer loan receivables 2,622 2,390
Installment payment receivables 830 844
Investments in business alliances 884 509
Goodwill, less accumulated amortization
(1996, $ 1,300; 1995, $ 913) 1,067 870
Other investments and sundry assets 1,998 2,033
-------- --------
Total $ 21,595 $ 20,603
-------- --------
-------- --------
*These leases relate principally to IBM equipment and are generally for terms
ranging from three to five years. Net investment in sales-type leases
includes unguaranteed residual values of approximately $471 million and $470
million at December 31, 1996 and 1995, respectively, and is reflected net of
unearned income at these dates of approximately $2,000 million and $2,100
million, respectively. Scheduled maturities of minimum lease payments
outstanding at December 31, 1996, expressed as a percentage of the total, are
approximately as follows: 1997, 47 percent; 1998, 30 percent; 1999, 16
percent; 2000, 5 percent; and 2001 and beyond, 2 percent.
F Debt
Short-term debt
At December 31:
(Dollars in millions) 1996 1995
Commercial paper $ 6,069 $ 4,933
Short-term loans 3,966 3,755
Long-term debt: Current maturities 2,922 2,881
-------- --------
Total $ 12,957 $ 11,569
-------- --------
-------- --------
The weighted-average interest rates for commercial paper at December 31, 1996
and 1995, were approximately 5.6 percent and 5.7 percent, respectively.
The weighted-average interest rates for short-term loans at December 31, 1996
and 1995, were approximately 5.7 percent and 6.6 percent, respectively.
64.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
Long-term debt
At December 31:
(Dollars in millions) Maturities 1996 1995
U.S. Dollars:
Debentures:
7% 2025 $ 600 $ 600
7% 2045 150 150
7-1/8% 2096 850 -
7-1/2% 2013 550 550
8-3/8% 2019 750 750
Notes:
5-1/2% to 7-1/2% 1997-2002 3,025 3,025
7-1/2% to 9-1/2% 1997-2000 174 186
Medium-term note program: 6.0% average 1997-2009 1,851 1,730
Other U.S. dollars: 5.9% to 8.9% 1997-2012 330 416
-------- -------
8,280 7,407
Other currencies (average interest rate
at December 31, 1996, in parentheses):
Japanese yen (2.8%) 1997-2014 4,028 4,149
Swiss francs 1996 - 43
Canadian dollars (11.0%) 1997-1999 5 431
French francs (10.1%) 1997-2002 282 358
Australian dollars (6.7%) 1997-1998 44 320
Other (11.6%) 1996-2017 188 256
-------- -------
12,827 12,964
Less: Net unamortized discount 33 23
-------- -------
12,794 12,941
Less: Current maturities 2,922 2,881
-------- -------
Total $ 9,872 $10,060
-------- -------
-------- -------
Annual maturities in millions of dollars on long-term debt outstanding at
December 31, 1996, are as follows: 1997, $2,922; 1998, $1,462; 1999, $1,469;
2000, $2,478; 2001, $386; 2002 and beyond, $4,110.
65.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
G Taxes
(Dollars in millions) 1996 1995 1994
For the year ended December 31:
Earnings before income taxes:
U.S. operations $ 3,025 $ 2,149 $ 1,574
Non-U.S. operations 5,562 5,664 3,581
-------- -------- --------
$ 8,587 $ 7,813 $ 5,155
-------- -------- --------
-------- -------- --------
The provision for income taxes by geographic
operations is as follows:
U.S. operations $ 1,137 $ 1,538 $ 654
Non-U.S. operations 2,021 2,097 1,480
-------- -------- --------
Total provision for income taxes $ 3,158 $ 3,635 $ 2,134
-------- -------- --------
-------- -------- --------
The components of the provision for income
taxes by taxing jurisdiction are as follows:
U.S. federal:
Current $ 727 $ 85 $ 49
Deferred 83 1,075 74
-------- -------- --------
810 1,160 123
U.S. state and local:
Current 158 65 68
Deferred (353) - -
-------- -------- --------
(195) 65 68
Non-U.S.:
Current 2,262 2,093 1,192
Deferred 281 317 751
-------- -------- --------
2,543 2,410 1,943
-------- -------- --------
Total provision for income taxes 3,158 3,635 2,134
Social security, real estate, personal property
and other taxes 2,584 2,566 2,465
-------- -------- --------
Total taxes $ 5,742 $ 6,201 $ 4,599
-------- -------- --------
-------- -------- --------
The effect of tax law changes on deferred tax assets and liabilities did not
have a significant impact on the company's effective tax rate.
66.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
The significant components of activities that gave rise to deferred tax
assets and liabilities included on the balance sheet were as follows:
Deferred Tax Assets
At December 31:
(Dollars in millions) 1996 1995*
Employee benefits $ 3,554 $ 3,374
Capitalized research and development 1,478 1,772
Restructuring charges 1,323 2,003
Asset impairments 1,304 1,424
Alternative minimum tax credits 1,016 859
Deferred income 993 306
General business credits 452 452
Foreign tax loss carryforwards 368 303
Equity alliances 340 407
Intracompany sales and services 194 325
State and local tax loss carryforwards 166 236
Depreciation 123 172
Foreign tax credits - 1,183
Other 2,411 2,463
-------- --------
Gross deferred tax assets 13,722 15,279
Less: Valuation allowance 2,239 3,868
-------- --------
Net deferred tax assets $ 11,483 $ 11,411
-------- --------
-------- --------
Deferred Tax Liabilities
Sales-type leases $ 3,126 $ 2,898
Retirement benefits 1,967 1,919
Depreciation 1,702 1,787
Software costs deferred 648 967
Other 1,465 1,320
-------- --------
Gross deferred tax liabilities $ 8,908 $ 8,891
-------- --------
-------- --------
*Reclassified to conform to 1996 presentation.
The estimated reversal periods for the largest deductible temporary
differences are: Employee benefits - 1 to 30 years; Capitalized research and
development - 1 to 7 years; Restructuring - 1 to 5 years.
The valuation allowance applies to U.S. federal tax credits, state and local
net deferred tax assets and net operating loss carryforwards, and net
operating losses in certain foreign jurisdictions that may expire before the
company can utilize them. The net change in the total valuation allowance for
the year ended December 31, 1996, was principally due to the use of available
foreign tax credits in conjunction with the repatriation of dividends from
foreign subsidiaries and any resulting benefit in the current year was
substantially reduced by the additional tax cost associated with the dividend
repatriation. It is reasonably possible that the deferred tax asset valuation
allowance could continue to decrease in the near term, depending on the
company's ability to generate sufficient taxable income in multiple tax
jurisdictions.
67.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
The consolidated effective income tax rate was 37 percent in 1996, 47 percent
in 1995 and 41 percent in 1994.
A reconciliation of the company's effective tax rate to the statutory U.S.
federal tax rate is as follows:
For the year ended December 31: 1996 1995 1994
Statutory rate 35% 35% 35%
Foreign tax differential 2 2 5
State and local 1 1 1
U.S. valuation allowance (6) (2) -
Other 3 2 -
---- ---- ----
Effective rate before purchased in-process
research and development 35% 38% 41%
Purchased in-process research and development 2 9 -
---- ---- ----
Effective rate 37% 47% 41%
For tax return purposes, the company has available tax credit carryforwards
of approximately $ 1,673 million, of which $ 1,016 million have an indefinite
carryforward period, $ 184 million expire in 1999 and the remainder
thereafter. The company also has state and local and foreign tax loss
carryforwards, the tax effect of which is $ 534 million. Most of these
carryforwards have an indefinite carryforward period.
Undistributed earnings of non-U.S. subsidiaries included in consolidated
retained earnings amounted to $ 12,111 million at December 31, 1996, $ 12,565
million at December 31, 1995 and $ 11,280 million at December 31, 1994. These
earnings, which reflect full provision for non-U.S. income taxes, are
indefinitely reinvested in non-U.S. operations or will be remitted
substantially free of additional tax.
H Selling and Advertising
Selling and advertising expenses are charged against income as incurred.
Advertising and promotional expense included in SG&A expense amounted to $
1,569 million, $ 1,315 million and $ 977 million in 1996, 1995 and 1994,
respectively.
I Research, Development and Engineering
Research, development and engineering expenses amounted to $ 4,654 million in
1996, $ 4,170 million in 1995 and $ 4,363 million in 1994. Expenditures for
product-related engineering included in these amounts were $ 720 million, $
783 million and $ 981 million in 1996, 1995 and 1994, respectively.
Expenditures of $ 3,934 million in 1996, $ 3,387 million in 1995 and $ 3,382
million in 1994 were made for research and development activities covering
basic scientific research and the application of scientific advances to the
development of new and improved products and their uses. Of these amounts,
software-related activities were $ 1,726 million, $ 1,157 million and $ 793
million in 1996, 1995 and 1994, respectively.
Purchased in-process research and development was $ 435 million and $ 1,840
million, for 1996 and 1995, respectively.
68.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
J Interest on Debt
Interest paid and accrued on borrowings of the company and its subsidiaries
amounted to $ 1,565 million in 1996, $ 1,600 million in 1995 and $ 2,006
million in 1994. Of these amounts, $ 31 million in 1996, $ 23 million in 1995
and $ 20 million in 1994 were capitalized. The remainder was charged to cost
of rentals and financing, and interest expense. The year-to-year decrease in
interest expense was primarily a result of lower average interest rates which
were 7.0 percent, 7.2 percent and 8.0 percent in 1996, 1995 and 1994,
respectively.
K Other Liabilities and Environmental
Other liabilities consists principally of accruals for nonpension
postretirement benefits for U.S. employees and indemnity and retirement plan
reserves for non-U.S. employees. More detailed discussion of these
liabilities appears in note R, "Nonpension Postretirement Benefits," on pages
78 and 79, and note Q, "Retirement Plans," on pages 76 through 78. In
addition, accruals associated with prior year infrastructure reduction
actions amounted to $ 2.8 billion at December 31, 1996.
In addition, the company continues to participate in environmental
assessments and cleanups at a number of locations, including operating
facilities, previously owned facilities and Superfund sites. The company
accrues for all known environmental liabilities for remediation cost when a
cleanup program becomes probable and costs can be reasonably estimated.
Estimated environmental costs associated with post-closure activities, such
as the removal and restoration of chemical storage facilities and monitoring,
are accrued when the decision is made to close a facility. The amounts
accrued, which do not reflect any insurance recoveries, were $ 244 million
and $ 223 million at December 31, 1996 and 1995, respectively.
The amounts accrued do not cover sites that are in the preliminary stages of
investigation where neither the company's percentage of responsibility nor
the extent of cleanup required has been identified. Also excluded is the cost
of internal environmental protection programs that are primarily preventive
in nature. Estimated environmental costs are not expected to materially
impact the financial position or results of the company's operations in
future periods. However, environmental cleanup periods are protracted in
length, and environmental costs in future periods are subject to changes in
environmental remediation regulations.
L Contingencies
On February 25, 1993, a consolidated and amended class action complaint was
filed against the company in the United States District Court for the
Southern District of New York alleging violations of Section 12 of the
Securities Act of 1933 and Section 10 of the Securities Exchange Act of 1934.
The complaint alleges, among other matters, that the company disseminated
false and misleading statements concerning its financial condition and
dividends during certain periods of 1992, as a result of which plaintiffs
were injured in connection with their purchases of IBM stock during the
period of September 30, 1992, through December 14, 1992. The plaintiffs seek
money damages. On February 3, 1997, Judge Jed S. Rakoff issued an order
granting the company's motion for summary judgment in this case in its
entirety. The company does not believe that the ultimate outcome of this
matter will have a material effect on its results of operations or its
financial position.
69.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
M Customer Financing
The primary focus of IBM's worldwide customer financing offerings is to support
customers in their acquisitions of the company's products and services. This
support is provided both by IBM and through its financing subsidiaries, the
results of which are presented in this note in a consistent manner.
The following schedules reflect the financial position, net earnings and cash
flows for customer financing in comparison to the company's consolidated
results with customer financing results reflected on an equity basis. This
involves presenting within a single line item the investment and related
return from customer financing as reflected in the company's consolidated
financial statements. For the statement of financial position, customer
financing's assets net of related liabilities, and after elimination of applic
able intracompany transactions, are shown separately as a single line item,
Investment in customer financing. Eliminations primarily pertain to internal
mark-ups to fair value on equipment held on operating leases. With respect to
the statement of earnings, net earnings for customer financing before
applicable taxes and after elimination of related intracompany transactions,
are included in the line description, Other income. The provision for income
taxes for customer financing is based on the statutory income tax rate of
each country, calculated on a separate return basis. For the statement of
cash flows, certain cash flow activities are reclassified to be consistent
with the classification of such activities reflected in the company's
Consolidated Statement of Cash Flows. Such reclassifications primarily
pertain to cash flow activity related to financing receivables.
Because customer financing is different in nature from the company's
manufacturing, development and services businesses, management believes that
the aforementioned type of comparative disclosure enhances the understanding
and analysis of the consolidated financial statements.
70.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
Statement of Financial Position
IBM with
At December 31: Customer Financing
Customer Financing on an Equity Basis
(Dollars in millions) 1996 1995* 1996 1995*
Assets:
Cash and cash equivalents $ 1,433 $ 808 $ 6,254 $ 6,451
Notes and accounts receivable - - 10,063 10,981
Net investment in capital leases 13,430 14,096 - -
Working capital financing receivables 4,030 3,886 - -
Loans receivable 6,428 5,481 - -
Inventories 98 87 5,788 6,252
Plant, rental machines and other
property, net of accum. depreciation 3,988 2,924 15,229 15,101
Other assets 2,386 1,564 15,010 14,501
Investment in customer financing - - 5,613 4,768
-------- ------- -------- --------
Total assets $ 31,793 $28,846 $ 57,957 $ 58,054
-------- ------- -------- --------
-------- ------- -------- --------
Liabilities and stockholders' equity:
Taxes, accrued expenses and
other liabilities $ 7,915 $ 5,992 $ 34,127 $ 33,724
Debt 20,627 19,722 2,202 1,907
-------- ------- -------- --------
Total liabilities 28,542 25,714 36,329 35,631
Stockholders' equity/invested capital 3,251 3,132 21,628 22,423
-------- ------- -------- --------
Total liabilities and
stockholders' equity $ 31,793 $28,846 $ 57,957 $ 58,054
-------- ------- -------- --------
-------- ------- -------- --------
*Reclassified to conform to 1996 presentation.
Statement of Earnings
<TABLE>
<CAPTION>
IBM with
For the year ended December 31: Customer Financing Customer Financing
on an Equity Basis
(Dollars in millions) 1996 1995 1994 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Finance and other income:
Finance income $ 2,048 $ 2,110 $ 2,026 $ - $ - $ -
Rental income, net 509 415 338 590 469 589
Sales 809 1,001 1,160 71,798 67,588 59,991
Other income 320 367 933 1,381 1,473 1,423
------- ------- ------- ------- ------- -------
Total finance and other income 3,686 3,893 4,457 73,769 69,530 62,003
Interest and other costs and
expenses 2,426 2,782 3,245 65,182 61,717 56,848
------- ------- ------- ------- ------- -------
Net earnings before
income taxes 1,260 1,111 1,212 8,587 7,813 5,155
Provision for income taxes 531 428 505 3,158 3,635 2,134
------- ------- ------- ------- ------- -------
Net earnings $ 729 $ 683 $ 707 $ 5,429 $ 4,178 $ 3,021
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
</TABLE>
71.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
Statement of Cash Flows
<TABLE>
<CAPTION>
For the year ended December 31: IBM with
Customer Financing
Customer Financing on an Equity Basis
(Dollars in millions) 1996 1995 1994 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Net cash provided from
operating activities $ 5,314 $ 3,712 $ 2,669 $ 8,217 $ 9,250 $ 8,393
Net cash used in
investing activities (5,544) (3,968) (249) (3,435) (3,338) (2,446)
Net cash provided from (used in)
financing activities 872 (198) (3,294) (4,824) (6,186) (3,118)
Effect of exchange rate changes
on cash and cash equivalents (17) (42) 82 (155) 107 24
------- ------- ------- ------- ------- -------
Net change in cash and cash
equivalents 625 (496) (792) (197) (167) 2,853
Cash and cash equivalents at
January 1 808 1,304 2,096 6,451 6,618 3,765
------- ------- ------- ------- ------- -------
Cash and cash equivalents at
December 31 $ 1,433 $ 808 $ 1,304 $ 6,254 $ 6,451 $ 6,618
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
</TABLE>
Customer financing debt at December 31, 1996, consisted of borrowings with
external financial institutions of $ 14,127 million and intracompany
borrowings of $ 6,500 million. Intracompany borrowings are made pursuant to
loan agreements between the parties at interest rates approximating market
rates.
Customer financing earnings yielded a return on average invested capital of
22.7 percent in 1996, compared to 22.6 percent in 1995. Included within these
results are intracompany services and fees received for tax benefits provided
to the company resulting from tax deferrals generated by financing
transactions. Such fees are eliminated from the Consolidated Statement of
Earnings. The 1994 earnings included income resulting from IBM Credit
Corporation's litigation settlement with Comdisco, Inc., and from IBM Credit
Corporation's sale of IBM Credit Investment Management Corporation.
72.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
N Rental Expense and Lease Commitments
Rental expense, including amounts charged to inventories and fixed assets and
excluding amounts previously reserved, was $ 1,210 million in 1996, $ 1,145
million in 1995 and $ 1,276 million in 1994. The table below depicts gross
minimum rental commitments under non-cancelable leases, amounts related to
vacant space which the company had previously reserved and sublease income
commitments. These amounts generally reflect activities related to office
space.
Beyond
(Dollars in millions) 1997 1998 1999 2000 2001 2001
Gross rental commitments $ 1,129 $ 1,005 $ 888 $ 761 $ 580 $ 1,722
Vacant space 322 283 231 215 167 438
Sublease income commitments 119 110 96 84 66 129
O Stock-Based Compensation Plans
The company applies Accounting Principles Board (APB) Opinion 25, "Accounting
for Stock Issued to Employees," and related Interpretations in accounting for
its stock-based compensation plans. A description of the terms of the
company's stock-based compensation plans follows:
Long-Term Performance Plan
Incentive awards are provided to officers and other key employees under the
terms of the IBM 1994 Long-Term Performance Plan (the "Plan"), which was
approved by stockholders in April 1994. The Plan is administered by the
Executive Compensation and Management Resources Committee of the Board of
Directors. The committee determines the type and terms of the award to be
granted, including vesting provisions. Awards may include stock options,
stock appreciation rights (SARs), restricted stock, cash, stock or any
combination thereof. The number of shares that may be issued under the Plan
for awards granted wholly or partly in stock during the five-year term of the
Plan is 29.1 million, which approximated 5 percent of the outstanding common
stock as determined on February 10, 1994. Prior to April 25, 1994, awards
were issued under the IBM 1989 Long-Term Performance Plan. There were
approximately 13.0 million, 21.0 million and 27.8 million unused shares
available for granting under the 1994 Long-Term Performance Plan as of
December 31, 1996, 1995 and 1994, respectively.
Awards under the Plan resulted in compensation expense of $ 203.9 million, $
106.3 million and $ 139.1 million, that was included in net earnings before
income taxes, in 1996, 1995 and 1994, respectively. Such awards include those
that settle in cash, such as SARs, and restricted stock grants.
73.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
Stock Option Grants
Stock options granted under the Plan allow the purchase of IBM's common stock
at 100 percent of the market price on the date of grant and typically expire
10 years from the date of grant. The following table summarizes option
activity of the Plan during 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Exercise No. of Shares Exercise No. of Shares Exercise No. of Shares
Price under Option Price under Option Price under Option
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1 $ 78 34,282,903 $ 68 34,063,317 $ 83 29,260,724
Options granted 126 7,679,529 77 6,468,702 54 6,863,219
Options exercised 71 (9,651,311) 51 (3,695,789) 44 (235,044)
Options terminated 121 (1,593,460) 103 (2,553,327) 91 (1,825,582)
----- ---------- ----- ---------- ----- ----------
Balance at December 31 $ 88 30,717,661 $ 78 34,282,903 $ 68 34,063,317
----- ---------- ----- ---------- ----- ----------
----- ---------- ----- ---------- ----- ----------
Exercisable at December 31 $ 83 15,301,922 $ 91 19,176,410 $ 103 16,666,537
----- ---------- ----- ---------- ----- ----------
----- ---------- ----- ---------- ----- ----------
</TABLE>
The shares under option at December 31, 1996, were at the following exercise
prices:
<TABLE>
<CAPTION>
Options
Options Outstanding Currently Exercisable
Wtd. Avg. Wtd. Avg. Wtd. Avg.
No. of Exercise Contractual No. of Exercise
Exercise Price Range Options Price Life (in years) Options Price
<S> <C> <C> <C> <C> <C>
$43 - 99 18,570,322 $ 64 7 10,678,111 $ 65
$100 - 139 11,398,198 122 7 3,890,671 117
$140 & over 749,141 160 2 733,140 160
---------- ----------
30,717,661 15,301,922
---------- ----------
---------- ----------
</TABLE>
IBM Employees Stock Purchase Plan
The IBM Employees Stock Purchase Plan (ESPP) enables substantially all
regular employees to purchase full or fractional shares of IBM common stock
through payroll deductions of up to 10 percent of eligible compensation. The
price an employee pays is 85 percent of the average market price on the last
day of an applicable pay period.
During 1996, 1995 and 1994, employees purchased 3,230,928; 4,479,340 and
6,576,030 shares, all of which were treasury shares, for which $ 324 million,
$ 344 million and $ 350 million was paid to IBM, respectively.
There were approximately 20.1 million, 23.3 million and 15.1 million reserved
unissued shares available for purchase, as previously approved by
stockholders, at December 31, 1996, 1995 and 1994, respectively.
74.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
Pro Forma Disclosure
In applying APB Opinion 25, no expense was recognized for stock options
granted under the Plan and for employee stock purchases under the ESPP.
Beginning in 1995, SFAS 123, "Accounting for Stock-Based Compensation,"
required that a fair market value of all awards of stock-based compensation
be determined using standard techniques and that pro forma net earnings and
earnings per share be disclosed as if the resulting stock-based compensation
amounts were recorded in the Consolidated Statement of Earnings as follows:
<TABLE>
<CAPTION>
1996 1995
(Dollars in millions except per share amounts) As reported Pro forma As reported Pro forma
<S> <C> <C> <C> <C>
Net earnings applicable to common shareholders $ 5,409 $ 5,267 $ 4,116 $ 4,020
Net earnings per share of common stock $ 10.24 $ 9.97 $ 7.23 $ 7.06
</TABLE>
The above pro forma amounts, for purposes of SFAS 123, reflect the portion of
the estimated fair value of awards earned in 1996 and 1995. The aggregate
fair value of awards granted is earned ratably over the vesting or service
period and is greater than that included in the pro forma amounts.
The company used the Black-Scholes model to value the stock options granted
in 1996 and 1995. The weighted average assumptions used to estimate the value
of the options included in the pro forma amounts, and the weighted average
estimated fair value of an option granted are as follows:
1996 1995
Term (years)* 5/6 5/6
Volatility** 22.0% 21.0%
Risk-free interest rate (zero coupon
U.S. Treasury note) 6.0% 7.0%
Dividend yield 1.2% 2.0%
Weighted average fair value $ 40 $ 23
*Option term is based on tax incentive options (5 years) and non-tax incentive
options (6 years).
**To determine volatility the company measured the daily price changes of the
stock over the most recent 5 and 6 year periods.
P Stock Repurchases
In 1996 and 1995, the Board of Directors authorized the company to purchase
up to $ 13.5 billion of IBM common stock. During 1996 and 1995, the company
repurchased 49,465,200 common shares at a cost of $ 5,810 million and
50,906,300 common shares at a cost of $ 4,864 million, respectively. The
repurchases resulted in a reduction of $ 61,831,500 and $ 63,632,875 in the
stated capital (par value) associated with common stock in 1996 and 1995,
respectively. The repurchased shares were retired and restored to the status
of authorized but unissued shares. At December 31, 1996, approximately $ 2.8
billion of Board authorized repurchases remained. The company plans to
purchase shares on the open market from time to time, depending on market
conditions.
During 1995, the IBM Board of Directors authorized the company to purchase
all of its outstanding Series A 7 1/2 percent preferred stock depositary
shares. The company repurchased 8,534,289 shares at a cost of $ 870 million
during 1995, which resulted in a reduction of $ 85,343 in the stated capital
(par value) associated with preferred stock. The repurchased shares were
retired and restored to the status of authorized but unissued shares. No
shares were repurchased in 1996. The company plans to purchase remaining
shares on the open market and in private transactions from time to time,
depending on market conditions.
75.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
Q Retirement Plans
The company and its subsidiaries have defined benefit and defined
contribution retirement plans covering substantially all regular employees.
The cost of the defined contribution plans was not material. The aggregate
worldwide cost of the defined benefit plans for 1996, 1995 and 1994 was $
(137) million, $ 165 million and $ 678 million, respectively, as follows:
<TABLE>
<CAPTION>
Net Periodic Pension Cost
U.S. Plan Non-U.S. Plans
1996 1995 1994 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Expected long-term rate of
return on plan assets 9.25% 9.25% 9.5% 6.5-10% 6.25-10% 5.5-9%
(Dollars in millions)
Service cost $ 412 $ 315 $ 542 $ 378 $ 386 $ 467
Interest cost on the projected
benefit obligation 2,125 2,098 2,033 1,292 1,325 1,107
Return on plan assets:
Actual (4,849) (5,500) 327 (2,543) (1,848) 329
Deferred 2,148 2,958 (2,826) 1,075 403 (1,540)
Net amortizations (121) (123) (65) 28 12 19
Settlement (gains)/curtailment losses - - - (102) 128 269
------- ------- ------- ------- --------- -------
Net periodic pension cost $ (285) $ (252) $ 11 $ 128 $ 406 $ 651
------- ------- ------- ------- --------- -------
------- ------- ------- ------- --------- -------
Total net periodic pension
cost for all non-U.S. plans $ 148 $ 417 $ 667
------- --------- -------
------- --------- -------
</TABLE>
Net periodic pension cost is determined using the Projected Unit Credit
actuarial method. Settlement gains in 1996 reflect principally the transfer
of assets to defined contribution plans upon election by the employees in
certain countries. Curtailment losses in 1995 and 1994 resulted from the
significant reductions in the expected years of future service caused by
termination programs and represent the immediate recognition of associated
prior service cost and a portion of previously unrecognized actuarial losses.
In 1994, the company introduced a non-qualified U.S. Supplemental Executive
Retirement Plan (SERP) effective January 1, 1995, which will be phased in
over three years. The SERP, which is unfunded, provides eligible executives
defined pension benefits outside the IBM Retirement Plan, based on average
earnings, years of service and age at retirement. At December 31, 1996 and 199
5, the projected benefit obligation was $ 93 million and $ 82 million,
respectively. The net unrecognized costs of the SERP were $ 57 million and $
64 million, and the amounts included in the Consolidated Statement of
Financial Position were pension liabilities of $ 36 million and $ 18 million
as of December 31, 1996 and 1995, respectively. These amounts are in addition
to the U.S. retirement plan financial information included herein.
76.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
The table below provides information on the status of the U.S. and material
non-U.S. defined benefit retirement plans:
Funded Status
<TABLE>
<CAPTION>
U.S. Plan Non-U.S. Plans
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Assumptions:
Discount rate 7.75% 7.25% 4.5-8.5% 4.5-9.0%
Long-term rate of
compensation increase 5% 5% 2.3-6.5% 1.5-6.5%
(Dollars in millions)
Actuarial present value of benefit obligations:
Vested benefit obligation $ (26,355) $ (26,413) $ (17,380) $ (17,788)
Accumulated benefit obligation $ (27,698) $ (28,070) $ (18,273) $ (18,771)
Projected benefit obligation $ (29,729) $ (30,235) $ (19,739) $ (20,294)
Plan assets at fair value 34,281 31,209 20,808 19,693
--------- --------- --------- ---------
Projected benefit obligation less
than (in excess of) plan assets 4,552 974 1,069 (601)
Unrecognized net (gain) loss (1,421) 1,976 (1,539) (436)
Unrecognized prior service cost 193 230 248 267
Unrecognized net asset established
at January 1, 1986 (1,052) (1,193) (110) (143)
--------- --------- --------- ---------
Prepaid pension cost (pension liability)
recognized in the Consolidated
Statement of Financial Position $ 2,272 $ 1,987 $ (332) $ (913)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The U.S. plan's projected benefit obligation decreased in 1996 primarily as a
result of a change in the discount rate assumption, as required under SFAS
87, "Employers' Accounting for Pensions," which decreased the projected
benefit obligation by approximately $ 1,700 million. The effect on the
company's results of operations and financial position from changes in the
estimates and assumptions used in computing pension expense and prepaid
pension cost or pension liability is mitigated by the delayed recognition
provisions of SFAS 87 with the exception of the effects of settlement gains,
curtailment losses and early terminations, which are recognized immediately.
It is the company's practice to fund amounts for pensions sufficient to meet
the minimum requirements set forth in applicable employee benefit laws and
with regard to local tax laws. Additional amounts are contributed from time
to time when deemed appropriate by the company. Liabilities for amounts in
excess of these funding levels are accrued and reported in the company's
Consolidated Statement of Financial Position. The assets of the various plans
include corporate equities, government securities, corporate debt securities
and income-producing real estate.
77.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
U.S. Plan: U.S. regular, full-time and part-time employees are covered by a
noncontributory plan which is funded by company contributions to an
irrevocable trust fund, which is held for the sole benefit of employees. In
1994, the company announced major changes to the plan that took effect in
1995. Under a new formula, which is being phased in over five years,
retirement benefits will be determined based on points accumulated for each
year worked and final average compensation period. To preserve benefits of
employees close to retirement, service and earnings credit will continue to
accrue under the prior formula through the year 2000, and upon retirement,
these employees will receive the benefit from either the new or prior
formulas, whichever is higher. Benefits become vested upon the completion of
five years of service. The number of individuals receiving benefits at
December 31, 1996 and 1995, was 101,293 and 92,133, respectively.
Non-U.S. Plans: Most subsidiaries and branches outside the U.S. have
retirement plans covering substantially all regular employees, under which
funds are deposited under various fiduciary-type arrangements, annuities are
purchased under group contracts or reserves are provided. Retirement benefits
are based on years of service and the employee's compensation, generally
during a fixed number of years immediately prior to retirement. The ranges of
assumptions used for the non-U.S. plans reflect the different economic environ-
ments within various countries.
R Nonpension Postretirement Benefits
The company and its U.S. subsidiaries have defined benefit postretirement
plans that provide medical, dental and life insurance for retirees and
eligible dependents. Plan cost maximums for those who retired prior to
January 1, 1992, will take effect beginning with the year 2001. Plan cost
maximums for all other employees take effect upon retirement.
The table below provides information on the status of the U.S. plans:
Funded Status
1996 1995
Assumed discount rate 7.75% 7.25%
(Dollars in millions)
Accumulated postretirement benefit obligation:
Retirees $ (5,454) $ (5,661)
Fully eligible active plan participants (512) (704)
Other active plan participants (487) (653)
-------- --------
Total (6,453) (7,018)
Plan assets at fair value 559 886
-------- --------
Accumulated postretirement benefit obligation in
excess of plan assets (5,894) (6,132)
Unrecognized net loss 378 718
Unrecognized prior service cost (902) (660)
-------- --------
Accrued postretirement benefit cost recognized
in the Consolidated Statement of Financial Position $ (6,418) $ (6,074)
-------- --------
-------- --------
The accumulated postretirement benefit obligation was determined by
application of the terms of medical, dental and life insurance plans,
including the effects of established maximums on covered costs, together with
relevant actuarial assumptions. These actuarial assumptions included a
projected healthcare cost trend rate of 6 percent. In 1996, the accumulated
postretirement benefit obligation decreased by $ 565 million primarily from
the change, as required by SFAS 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions," in the assumed discount rate.
78.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
The effect of a 1 percent annual increase in the assumed healthcare cost
trend rate would increase the accumulated postretirement benefit obligation
at December 31, 1996, by approximately $ 27 million; the 1996 annual costs
would not be materially affected.
It is the company's practice to fund amounts for postretirement benefits with
an independent trustee, as deemed appropriate from time to time. The plan
assets include various domestic fixed income securities. The accounting for
the plan is based on the written plan.
Net periodic postretirement benefit cost for U.S. retirees for the years
ended December 31 included the following components:
1996 1995 1994
Expected long-term rate of return on plan assets 9.25% 9.25% 9.5%
(Dollars in millions)
Service cost $ 43 $ 40 $ 51
Interest cost on the accumulated
postretirement benefit obligation 478 520 512
Actual return on plan assets (68) (198) 22
Net amortizations and deferrals (87) (7) (163)
------ ------ ------
Net periodic postretirement benefit cost $ 366 $ 355 $ 422
------ ------ ------
------ ------ ------
Certain of the company's non-U.S. subsidiaries have similar plans for
retirees. However, most retirees outside the United States are covered by
government-sponsored and administered programs, and the obligations and cost
of these programs are not significant to the company.
S Lines of Credit
The company maintains a $ 10.0 billion committed global credit facility.
Unused committed lines of credit from this global facility and other existing
committed and uncommitted lines of credit at December 31, 1996, were $ 13.9
billion, compared to $ 14.6 billion at December 31, 1995. Interest rates on
borrowings vary from country to country depending on local market conditions.
79.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
T Sale and Securitization of Receivables
At year-end 1996, the company had a net balance of $ 1.1 billion in assets
under management from the securitization of loans, leases and trade
receivables, compared to $ 1.2 billion at year-end 1995. The company received
total cash proceeds of approximately $ 4.0 billion and $ 3.4 billion in 1996
and 1995, respectively, from the sale and securitization of these receivables
and assets. No material gain or loss resulted from these transactions.
Recourse amounts associated with the aforementioned sales and securitization
activities are expected to be minimal, and adequate reserves are in place to
cover potential losses.
U Financial Instruments
The following presents information on certain significant on- and off-balance
sheet financial instruments, including derivatives.
Financial Instruments On-Balance Sheet (excluding derivatives)
Financial assets with carrying values approximating fair value include cash
and cash equivalents, marketable securities, notes and other accounts
receivable and other investments. Financial liabilities with carrying values
approximating fair value include accounts payable and other accrued expenses
and liabilities, as well as short-term and long-term debt.
The following table summarizes the company's marketable securities and other
investments, all of which were considered available for sale.
Marketable securities and other investments
At December 31:
Carrying Value
(Dollars in millions) 1996 1995
Current marketable securities:
U.S. government securities $ 108 $ 222
Time deposits and other bank obligations 283 93
Non-U.S. government securities and
other fixed-term obligations 59 127
------ ------
Total $ 450 $ 442
------ ------
------ ------
Non-current marketable securities:*
U.S. government securities $ 99 $ -
Time deposits and other bank obligations 127 97
Non-U.S. government securities and
other fixed-term obligations 155 72
------ ------
Total $ 381 $ 169
------ ------
------ ------
Other investments:*
Alliance investments on cost method $ 320 $ 128
------ ------
------ ------
*Included within Investments and sundry assets on the Consolidated Statement
of Financial Position.
80.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
Financial Instruments Off-Balance Sheet (excluding derivatives)
IBM has guaranteed certain loans and financial commitments of affiliates. The
fair market values of these financial guarantees were $ 787 million and $ 794
million at December 31, 1996 and 1995, respectively. Additionally, the
company is contingently liable for commitments of various ventures to which
it is a party, certain receivables sold with recourse and other contracts.
These commitments, which in the aggregate were approximately $ 400 million
and $ 200 million at December 31, 1996 and 1995, respectively, are not expected
to have a material adverse effect on the company's financial position or
results of operations.
The company's dealers had unused lines of credit available from IBM for
working capital financing of approximately $ 2.1 billion and $ 1.0 billion at
December 31, 1996 and 1995, respectively.
Derivative Financial Instruments
The following table summarizes the notional value, carrying value and fair
value of the company's derivative financial instruments on and off the
balance sheet. The notional value at year end provides an indication of the
extent of the company's involvement in such instruments, but does not
represent exposure to market risk.
<TABLE>
<CAPTION>
At December 31, 1996 At December 31, 1995
Notiona Carrying Fair Notional Carrying Fair
(Dollars in millions) Value Value Value* Value Value Value*
<S> <C> <C> <C> <C> <C> <C>
Interest rate and
currency contracts $ 18,700 $ (70) $ (117) $ 13,600 $ (88) $ (161)
Option contracts 10,100 92 81 4,800 18 41
--------- ----- ------ --------- ------ -------
Total $ 28,800 $ 22 $ (36) $ 18,400 $ (70) $ (120)
--------- ----- ------ --------- ------ -------
--------- ----- ------ --------- ------ -------
</TABLE>
Bracketed amounts are liabilities.
*The estimated fair value of derivatives both on- and off-balance sheet at
December 31, 1996 and 1995, consists of assets of $258 million and $153
million and liabilities of $294 million and $273 million, respectively.
The majority of the company's derivative transactions relates to the matching
of liabilities to assets associated with its worldwide customer financing
business. The company issues debt, using the most efficient capital markets
and products, which may result in a currency or interest rate mismatch.
Interest rate swaps or currency swaps are then used to match the interest
rates and currencies of its debt to the related customer financing
receivables. These swap contracts are principally one to five years in
duration. The company uses an internal regional center to manage the cash of
its subsidiaries. This regional center principally uses currency swaps to
convert cash flows in a cost-effective manner, predominantly for the
company's European subsidiaries. The terms of the swaps are generally less
than one year.
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 underwriting
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.
81.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
Additionally, the company uses derivatives to limit its exposure to loss
resulting from fluctuations in foreign currency exchange rates on anticipated
cash transactions between foreign subsidiaries and the parent company. The
company receives significant dividends, intracompany royalties and net payments
for goods and services from its non-U.S. subsidiaries. In anticipation of these
foreign currency flows, and given the volatility of the currency markets, the
company selectively employs foreign currency options to manage the currency
risk. The terms of these instruments are generally less than one year.
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
December 31, 1996 and 1995, there were no material deferred gains or losses.
The premiums associated with entering into option contracts are generally
amortized over the life of the options and are not material to the company's
results. Unamortized premiums are included in prepaid assets. All written
options are marked to market monthly and are not material to the company's
results.
The company has used derivative instruments as an element of its risk
management strategy for many years. Although derivatives entail a risk of
non-performance by counterparties, the company manages this risk by
establishing explicit dollar and term limitations that correspond to the
credit rating of each carefully selected counterparty. The company has not
sustained a material loss from these instruments nor does it anticipate any
material adverse effect on its results of operations or financial position in
the future.
V Subsequent Event
On January 28, 1997, the IBM Board of Directors declared a two-for-one common
stock split, subject to the approval of stockholders of an increase in the
number of common shares authorized from 750 million to 1,875 million.
The record date for the split is currently expected to be on or after May 9,
1997, with distribution of the split shares to follow on or after May 27,
1997.
W Segment Information
IBM is in the business of providing customer solutions through the use of
advanced information technologies. The company operates primarily in the
single industry segment that creates value by offering a variety of solutions
that include, either singularly or in some combination, services, software,
systems, products, financing and technologies. The schedule on page 83 shows
revenue by classes of similar products or services. Financial information by
geographic area is summarized in note X, "Geographic Areas," on pages 84 and
85.
For purposes of classifying similar information technology products, general
purpose computer systems that operate on a large class of applications are
classified as processor servers when the systems are simultaneously used by
multiple users at one time, or as clients when the systems are used by one
user at a time. Servers include the System/390, AS/400, RISC System/6000 and
personal computer server products. Personal systems clients include personal
computers and RISC System/6000 client products. Other clients include
display-based terminals and consumer and financial systems. Storage consists
of externally attached direct access storage devices, tape storage devices
and HDD storage files sold to external customers. Other peripherals consists
of advanced function printers and telecommunication devices. OEM hardware
consists primarily of revenue from the sale of semiconductors.
82.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
These hardware classes of products represent groupings that perform similar
functions, as opposed to the complete spectrum of products associated with
IBM's product divisions. Accordingly, they do not represent the full range of
any division's offerings, which could include related peripherals, software
and maintenance.
Services represents a wide range of service offerings including consulting,
education, systems integration design and development, managed operations of
systems and networks and availability services. Software includes
applications and systems software for both host and distributed systems.
Maintenance consists of separately billed charges for maintenance. Financing
and other is composed primarily of financing revenue and products and
supplies not otherwise classified.
Some products logically fit in more than one class and are assigned to a
specific class based on a variety of factors. Over time, products tend to
overlap, merge into or split from existing classes as a result of changing
technologies, market perceptions and/or customer use. For example, market
demand may create requirements for technological enhancements to permit a
peripheral product to be functionally integrated with a display, a
telecommunication device and a processor to form a workstation. Such interchan
geability and technological progress tend to make year-to-year comparisons
less valid than they would be in an industry less subject to rapid change.
Revenue by Classes of Similar Products or Services
<TABLE>
<CAPTION>
Consolidated U.S. Only
(Dollars in millions) 1996 1995* 1994* 1996 1995* 1994*
<S> <C> <C> <C> <C> <C> <C>
Information technology:
Processors:
Servers** $ 12,421 $ 12,597 $ 11,553 $ 4,365 $ 4,464 $ 3,958
Clients:
Personal systems** 12,747 11,199 9,731 5,090 4,401 4,046
Other clients** 1,178 1,478 1,538 429 480 463
Peripherals:
Storage** 4,632 4,828 4,608 2,390 1,970 1,767
Other peripherals** 2,304 2,085 2,006 860 764 810
OEMhardware 2,697 2,968 2,191 1,738 1,975 1,285
Services 15,873 12,714 9,715 6,129 4,606 3,709
Software 13,052 12,657 11,346 4,377 4,117 3,926
Maintenance 6,981 7,409 7,222 2,525 2,618 2,648
Financing and other 4,062 4,005 4,142 1,492 1,394 1,506
-------- -------- -------- ------- ------- -------
Total $ 75,947 $ 71,940 $ 64,052 $29,395 $26,789 $24,118
-------- -------- -------- ------- ------- -------
-------- -------- -------- ------- ------- -------
</TABLE>
**Reclassified to conform to 1996 presentation.
**Hardware only, includes applicable rental revenue, excludes functions not
embedded, software and maintenance.
83.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
X Geographic Areas
Sales and services in the United States and Canada are managed as a single
enterprise. However, in compliance with SFAS 14, "Financial Reporting for
Segments of a Business Enterprise," the United States is reported as a separate
geographic area. Canadian operations are included in the "Americas" area.
Non-U.S. subsidiaries operating in local currency environments account for
approximately 84 percent of the company's non-U.S. revenue. The remaining 16
percent is from subsidiaries and branches operating in U.S. dollars or in
highly inflationary environments.
In the Europe/Middle East/Africa area, European operations accounted for
approximately 95 percent of revenue in 1996, 1995 and 1994.
Interarea transfers consist principally of completed machines, subassemblies
and parts and software. Machines, subassemblies and parts are generally
transferred at an intracompany selling price. Software transfers represent
license fees paid by non-U.S. subsidiaries. The intracompany selling price
that relates to fixed asset transfers is capitalized and depreciated by the
importing area.
84.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Business Machines Corporation and Subsidiary Companies
(Dollars in millions) 1996 1995 1994
United States
Revenue - Customers $ 29,395 $ 26,789 $ 24,118
Interarea transfers 10,196 10,553 6,336
-------- -------- --------
Total $ 39,592 $ 37,342 $ 30,454
Net earnings 1,782 599 969
Assets at December 31 39,724 38,584 37,156
Europe/Middle East/Africa
Revenue - Customers $ 25,280 $ 25,238 $ 23,034
Interarea transfers 2,455 2,530 1,787
-------- -------- --------
Total $ 27,735 $ 27,768 $ 24,821
Net earnings 1,474 2,271 1,086
Assets at December 31 21,732 24,066 25,816
Asia Pacific
Revenue - Customers $ 14,752 $ 13,892 $ 11,365
Interarea transfers 2,781 2,698 1,876
-------- -------- --------
Total $ 17,533 $ 16,590 $ 13,241
Net earnings 1,466 1,098 567
Assets at December 31 12,152 12,789 12,619
Americas
Revenue - Customers $ 6,520 $ 6,021 $ 5,535
Interarea transfers 5,123 5,333 4,257
-------- -------- --------
Total $ 11,643 $ 11,354 $ 9,792
Net earnings 578 324 498
Assets at December 31 8,123 7,530 7,783
Eliminations
Revenue $(20,556) $(21,114) $(14,256)
Net earnings 129 (114) (99)
Assets (599) (2,677) (2,283)
Consolidated
Revenue $ 75,947 $ 71,940 $ 64,052
Net earnings 5,429 4,178 3,021
Assets at December 31 81,132 80,292 81,091
-------- -------- --------
-------- -------- --------
85.
<PAGE>
International Business Machines Corporation and Subsidiary Companies
Five-Year Comparison of Selected Financial Data
<TABLE>
<CAPTION>
(Dollars in millions except per share amounts) 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
For the year:
Revenue $ 75,947 $ 71,940 $ 64,052 $ 62,716 $ 64,523
Net earnings (loss) before
changes in accounting principles 5,429 4,178 3,021 (7,987) (6,865)
Per share of common stock 10.24 7.23 5.02 (14.02) (12.03)
Effect of accounting changes* - - - (114) 1,900
Per share of common stock - - - (.20) 3.33
Net earnings (loss) 5,429 4,178 3,021 (8,101) (4,965)
Per share of common stock 10.24 7.23 5.02 (14.22) (8.70)
Cash dividends paid on common stock 686 572 585 905 2,765
Per share of common stock 1.30 1.00 1.00 1.58 4.84
Investment in plant, rental machines
and other property 5,883 4,744 3,078 3,232 4,698
Return on stockholders' equity 24.8% 18.5% 14.3% - -
At end of year:
Total assets $ 81,132 $ 80,292 $ 81,091 $ 81,113 $ 86,705
Net investment in plant, rental machines
and other property 17,407 16,579 16,664 17,521 21,595
Working capital 6,695 9,043 12,112 6,052 2,955
Total debt 22,829 21,629 22,118 27,342 29,320
Stockholders' equity 21,628 22,423 23,413 19,738 27,624
</TABLE>
*1993, postemployment benefits; 1992, income taxes.
Selected Quarterly Data
(Dollars in millions except per share and stock prices)
<TABLE>
<CAPTION>
Net Per Share Common Stock
Gross Earnings Earnings Stock Prices**
Revenue Profit (Loss) (Loss) Dividends High Low
1996
<S> <C> <C> <C> <C> <C> <C> <C>
First quarter $ 16,559 $ 6,769 $ 774 $ 1.41 $ .25 $ 128.88 $ 83.13
Second quarter 18,183 7,191 1,347 2.51 .35 120.88 96.13
Third quarter 18,062 7,258 1,285 2.45 .35 127.88 89.13
Fourth quarter 23,143 9,321 2,023 3.93 .35 166.00 123.13
-------- -------- ------- ------- ------
Total $ 75,947 $ 30,539 $ 5,429 $ 10.24* $ 1.30
-------- -------- ------- ------- ------
-------- -------- ------- ------- ------
1995
First quarter $ 15,735 $ 6,664 $ 1,289 $ 2.12 $ .25 $ 85.13 $ 70.25
Second quarter 17,531 7,631 1,716 2.97 .25 99.38 82.25
Third quarter 16,754 6,921 (538) (.96) .25 114.63 91.63
Fourth quarter 21,920 9,151 1,711 3.09 .25 102.38 87.75
-------- -------- ------- ------- ------
Total $ 71,940 $ 30,367 $ 4,178 $ 7.23* $ 1.00
-------- -------- ------- ------- ------
-------- -------- ------- ------- ------
</TABLE>
**The sum of the quarter's earnings per share does not equal the year-to-date
earnings per share due to changes in average share
calculations. This is in accordance with prescribed reporting requirements.
**The stock prices reflect the high and low prices for IBM's common stock on
the New York Stock Exchange composite tape for the last two years.
86.
<PAGE>
EXHIBIT III
PARENTS AND SUBSIDIARIES
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENTAGE OF
STATE OR COUNTRY VOTING SECURITIES
OF INCORPORATION OWNED BY ITS
OR ORGANIZATION IMMEDIATE PARENT
------------------- -------------------
<S> <C> <C>
Registrant:
International Business Machines Corporation............................... New York
Subsidiaries:
IBM Credit Corporation.................................................... Delaware 100
Integrated Systems Solutions Corporation.................................. Delaware 100
Lotus Development Corporation............................................. Massachusetts 100
Tivoli Systems, Inc. ..................................................... Delaware 100
IBM World Trade Corporation............................................... Delaware 100
IBM Asia Pacific Service Corporation.................................... Japan 100
IBM China/Hong Kong Corporation......................................... Delaware 100
IBM World Trade Asia Corporation........................................ Delaware 100
WTC Insurance Corporation, Ltd. ........................................ Bermuda 100
IBM Argentina, S.A...................................................... Argentina 100(E)
IBM Australia Ltd. ..................................................... Australia 100
IBM Bahamas Ltd. ....................................................... Bahamas 100
IBM de Bolivia, S.A..................................................... Bolivia 100
IBM Brasil-Industria, Maquinas e Servicos Ltda.......................... Brazil 100(E)
IBM Canada Limited--
IBM Canada Limitee.................................................... Canada 100
IBM China Company Limited............................................... China 100
IBM de Chile, S.A.C. ................................................... Chile 100(E)
IBM de Colombia, S.A.................................................... Colombia 90(C)
IBM Middle East FZE..................................................... United Arab
Emirates 100
IBM del Ecuador, C.A.................................................... Ecuador 100
Tata Information Systems Ltd. (TISL).................................... India 50
IBM Japan, Ltd. ........................................................ Japan 100
IBM Korea, Inc. ........................................................ Korea (South) 100
Grupo IBM Mexico, S.A. de C.V. ......................................... Mexico 100(A)
IBM de Mexico, S.A.................................................... Mexico 100(A)
IBM New Zealand Ltd..................................................... New Zealand 100
IBM del Peru, S.A. ..................................................... Peru 100
IBM Latin American Region S.A. ......................................... Peru 100
IBM World Trade Asia-Pacific Corporation................................ Philippines 98(A)
IBM Philippines, Incorporated........................................... Philippines 100(A)
IBM Romania Srl ........................................................ Romania 100
IBM Singapore Pte. Ltd. ................................................ Singapore 100
IBM Taiwan Corporation.................................................. Taiwan 100
Thai Systems Corporation Ltd............................................ Thailand 100
IBM Thailand Company Ltd................................................ Thailand 100(A)
IBM del Uruguay, S.A. .................................................. Uruguay 100
IBM de Venezuela, S.A. ................................................. Venezuela 100
IBM Vietnam Company..................................................... Vietnam 100
IBM Central Europe & Russia Inc. ....................................... Delaware 100
IBM Oesterreich, Internationale Bueromaschinen Gesellschaft m.b.H....... Austria 100
IBA (International Belarussia Alliance)................................. Belarus Republic 45
International Business Machines of Belgium S.A.......................... Belgium 100
IBM Botswanna (PTY) Limited............................................. Botswana 100(A)
IBM Bulgaria Ltd........................................................ Bulgaria 100
IBM Croatia Ltd./ IBM Hrvatska d.o.o. .................................. Croatia 100
IBM Ceska Republika spol. s.r.o......................................... Czech Republic 100
IBM Slovensko spol. s.r.o. ............................................. Slovak Republic 100
</TABLE>
<PAGE>
PARENTS AND SUBSIDIARIES
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENTAGE OF
STATE OR COUNTRY VOTING SECURITIES
OF INCORPORATION OWNED BY ITS
OR ORGANIZATION IMMEDIATE PARENT
------------------- -------------------
Compagnie IBM France, S.A. ............................................. France 100(A)
<S> <C> <C>
IBM Eurocoordination.................................................... France -- (B)
IBM Europe Middle East Africa........................................... France 100(A)
IBM Beteiligungs GmbH................................................... Germany 100
IBM Deutschland GmbH.................................................... Germany 82(C)
International Business Machines Corporation Magyarorszagi Kft........... Hungary 100
IBM Storage Products Industrial Duty Free Zone LLC ..................... Hungary 100
IBM International Treasury Services Company............................. Ireland -- (D)
IBM Ireland Ltd. ....................................................... Ireland 100
IBM SEMEA S.p.A. ....................................................... Italy 100
IBM Hellas Information Handling Systems S.A........................... Greece 100(E)
IBM Israel Ltd........................................................ Israel 100(E)
Companhia IBM Portuguesa, S.A......................................... Portugal 100
IBM (International Business Machines) Turk Ltd. Sirketi............... Turkey 98(C)
IBM South Africa Group Ltd............................................ South Africa 52
QuanTech................................................................ Lebanon 15
International Sales and Services B.V. .................................. Netherlands 100
IBM International Centre for Asset Management N.V....................... Netherlands 100
IBM International Holdings B.V.......................................... Netherlands 100
IBM Nederland N.V....................................................... Netherlands 100
IBM International Finance N.V......................................... Netherlands 100
IBM Polska Sp. z.o.o.................................................... Poland 100
International Business Machines A/S .................................... Norway 60(C)
IBM East Europe/Asia Ltd................................................ Russia 100
IBM Slovensko spol.s.r.o. .............................................. Slovak Republic 100
IBM Slovenija d.o.o. ................................................... Slovenia 100
International Business Machines, S.A.................................... Spain 100(E)
IBM Nordic Aktiebolag................................................... Sweden 100
IBM Danmark A/S....................................................... Denmark 100
Oy International Business Machines AB................................. Finland 100
IBM Svenska Aktiebolag................................................ Sweden 100
IBM International Centre for Asset Management A.G. ..................... Switzerland 100
IBM (Schweiz)--IBM (Suisse)--IBM (Svizzera)--IBM (Switzerland).......... Switzerland 100
IBM United Kingdom Holdings Ltd. ....................................... United Kingdom 100
International Business Machines Limited................................. United Kingdom 100
Bedford Investments (Private) Ltd....................................... Zimbabwe 100
</TABLE>
- ------------------------
(A) Minor percentage held by other IBM shareholders, subject to repurchase
option.
(B) IBM Eurocoordination, S.A. is owned approximately 14% each by subsidiaries
located in France, Germany, Italy and the United Kingdom and approximately
4% each by subsidiaries located in Austria, Belgium, Denmark, Finland,
Ireland, Netherlands, Norway, Portugal, Spain, Sweden and Switzerland and by
four other minority shareholders.
(C) Remaining percentage owned by another wholly-owned IBM company.
(D) IBM France and IBM Finland each own 16.6% and IBM Denmark and IBM
Switzerland each own 33.3% of IBM International Treasury Services Company.
(E) Minor percentage owned by another wholly-owned IBM company.
<PAGE>
EXHIBIT IV
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-8 (Nos. 2-77235,
2-77236, 33-5225, 33-29022, 33-33458 and 33-34406) and Form S-3 (Nos. 33-50537,
33-65119, 33-65119(1) and 333-03763) of International Business Machines
Corporation of our report dated January 20, 1997 appearing on page 43 of the
1996 Annual Report to Stockholders which is incorporated in this Annual Report
on Form 10-K. We also consent to the incorporation by reference of our report on
the Financial Statement Schedule, which appears on page 8 of this Form 10-K.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, N.Y. 10036
March 26, 1997
<PAGE>
POWER OF ATTORNEY OF DIRECTOR
-----------------------------
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Director of
International Business Machines Corporation, a New York corporation, which
will file with the Securities and Exchange Commission, Washington, D.C., under
the provisions of the Securities Law, an Annual Report for 1996 on Form 10-K,
hereby constitutes and appoints Louis V. Gerstner, Jr., G. Richard Thoman,
Lawrence R. Ricciardi, John R. Joyce, Jeffrey D. Serkes, and John E. Hickey his
true and lawful attorneys-in-fact and agents, and each of them with full power
to act without the others, for him or her and in his or her name, place and
stead, in any and all capacities, to sign said 10-K Annual Report and any and
all amendments thereto, and any and all other documents in connection
therewith, with the Securities and Exchange Commission, hereby granting unto
said attorneys-in-fact and agents, and each of them, full power and authority
to do and perform any and all acts and things requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as he or
she might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 25th day of February, 1997.
---- --------
/s/ Cathleen P. Black
-------------------------
Director
CATHLEEN P. BLACK
<PAGE>
POWER OF ATTORNEY OF DIRECTOR
-----------------------------
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Director of
International Business Machines Corporation, a New York corporation, which
will file with the Securities and Exchange Commission, Washington, D.C., under
the provisions of the Securities Law, an Annual Report for 1996 on Form 10-K,
hereby constitutes and appoints Louis V. Gerstner, Jr., G. Richard Thoman,
Lawrence R. Ricciardi, John R. Joyce, Jeffrey D. Serkes, and John E. Hickey his
true and lawful attorneys-in-fact and agents, and each of them with full power
to act without the others, for him or her and in his or her name, place and
stead, in any and all capacities, to sign said 10-K Annual Report and any and
all amendments thereto, and any and all other documents in connection
therewith, with the Securities and Exchange Commission, hereby granting unto
said attorneys-in-fact and agents, and each of them, full power and authority
to do and perform any and all acts and things requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as he or
she might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 25th day of February, 1997.
---- --------
/s/ Harold Brown
-------------------------
Director
HAROLD BROWN
<PAGE>
POWER OF ATTORNEY OF DIRECTOR
-----------------------------
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Director of
International Business Machines Corporation, a New York corporation, which
will file with the Securities and Exchange Commission, Washington, D.C., under
the provisions of the Securities Law, an Annual Report for 1996 on Form 10-K,
hereby constitutes and appoints Louis V. Gerstner, Jr., G. Richard Thoman,
Lawrence R. Ricciardi, John R. Joyce, Jeffrey D. Serkes, and John E. Hickey his
true and lawful attorneys-in-fact and agents, and each of them with full power
to act without the others, for him or her and in his or her name, place and
stead, in any and all capacities, to sign said 10-K Annual Report and any and
all amendments thereto, and any and all other documents in connection
therewith, with the Securities and Exchange Commission, hereby granting unto
said attorneys-in-fact and agents, and each of them, full power and authority
to do and perform any and all acts and things requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as he or
she might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 25th day of February, 1997.
---- --------
/s/ Dormann
-------------------------
Director
JUERGEN DORMANN
<PAGE>
POWER OF ATTORNEY OF DIRECTOR
-----------------------------
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Director of
International Business Machines Corporation, a New York corporation, which
will file with the Securities and Exchange Commission, Washington, D.C., under
the provisions of the Securities Law, an Annual Report for 1996 on Form 10-K,
hereby constitutes and appoints Louis V. Gerstner, Jr., G. Richard Thoman,
Lawrence R. Ricciardi, John R. Joyce, Jeffrey D. Serkes, and John E. Hickey his
true and lawful attorneys-in-fact and agents, and each of them with full power
to act without the others, for him or her and in his or her name, place and
stead, in any and all capacities, to sign said 10-K Annual Report and any and
all amendments thereto, and any and all other documents in connection
therewith, with the Securities and Exchange Commission, hereby granting unto
said attorneys-in-fact and agents, and each of them, full power and authority
to do and perform any and all acts and things requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as he or
she might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 25th day of February, 1997.
---- --------
/s/ Louis V. Gerstner, Jr.
-------------------------
Louis V. Gerstner, Jr.
Chairman of the Board
and Chief Executive Officer
<PAGE>
POWER OF ATTORNEY OF DIRECTOR
-----------------------------
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Director of
International Business Machines Corporation, a New York corporation, which
will file with the Securities and Exchange Commission, Washington, D.C., under
the provisions of the Securities Law, an Annual Report for 1996 on Form 10-K,
hereby constitutes and appoints Louis V. Gerstner, Jr., G. Richard Thoman,
Lawrence R. Ricciardi, John R. Joyce, Jeffrey D. Serkes, and John E. Hickey his
true and lawful attorneys-in-fact and agents, and each of them with full power
to act without the others, for him or her and in his or her name, place and
stead, in any and all capacities, to sign said 10-K Annual Report and any and
all amendments thereto, and any and all other documents in connection
therewith, with the Securities and Exchange Commission, hereby granting unto
said attorneys-in-fact and agents, and each of them, full power and authority
to do and perform any and all acts and things requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as he or
she might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 25th day of February, 1997.
---- --------
/s/ Nannerl O. Keohane
-------------------------
Director
NANNERL O. KEOHANE
<PAGE>
POWER OF ATTORNEY OF DIRECTOR
-----------------------------
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Director of
International Business Machines Corporation, a New York corporation, which
will file with the Securities and Exchange Commission, Washington, D.C., under
the provisions of the Securities Law, an Annual Report for 1996 on Form 10-K,
hereby constitutes and appoints Louis V. Gerstner, Jr., G. Richard Thoman,
Lawrence R. Ricciardi, John R. Joyce, Jeffrey D. Serkes, and John E. Hickey his
true and lawful attorneys-in-fact and agents, and each of them with full power
to act without the others, for him or her and in his or her name, place and
stead, in any and all capacities, to sign said 10-K Annual Report and any and
all amendments thereto, and any and all other documents in connection
therewith, with the Securities and Exchange Commission, hereby granting unto
said attorneys-in-fact and agents, and each of them, full power and authority
to do and perform any and all acts and things requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as he or
she might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 25th day of February, 1997.
---- --------
/s/ Charles F. Knight
-------------------------
Director
CHARLES F. KNIGHT
<PAGE>
POWER OF ATTORNEY OF DIRECTOR
-----------------------------
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Director of
International Business Machines Corporation, a New York corporation, which
will file with the Securities and Exchange Commission, Washington, D.C., under
the provisions of the Securities Law, an Annual Report for 1996 on Form 10-K,
hereby constitutes and appoints Louis V. Gerstner, Jr., G. Richard Thoman,
Lawrence R. Ricciardi, John R. Joyce, Jeffrey D. Serkes, and John E. Hickey his
true and lawful attorneys-in-fact and agents, and each of them with full power
to act without the others, for him or her and in his or her name, place and
stead, in any and all capacities, to sign said 10-K Annual Report and any and
all amendments thereto, and any and all other documents in connection
therewith, with the Securities and Exchange Commission, hereby granting unto
said attorneys-in-fact and agents, and each of them, full power and authority
to do and perform any and all acts and things requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as he or
she might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 25th day of February, 1997.
---- --------
/s/ Lucio A. Noto
-------------------------
Director
LUCIO A. NOTO
<PAGE>
POWER OF ATTORNEY OF DIRECTOR
-----------------------------
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Director of
International Business Machines Corporation, a New York corporation, which
will file with the Securities and Exchange Commission, Washington, D.C., under
the provisions of the Securities Law, an Annual Report for 1996 on Form 10-K,
hereby constitutes and appoints Louis V. Gerstner, Jr., G. Richard Thoman,
Lawrence R. Ricciardi, John R. Joyce, Jeffrey D. Serkes, and John E. Hickey his
true and lawful attorneys-in-fact and agents, and each of them with full power
to act without the others, for him or her and in his or her name, place and
stead, in any and all capacities, to sign said 10-K Annual Report and any and
all amendments thereto, and any and all other documents in connection
therewith, with the Securities and Exchange Commission, hereby granting unto
said attorneys-in-fact and agents, and each of them, full power and authority
to do and perform any and all acts and things requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as he or
she might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 25th day of February, 1997.
---- --------
/s/ John B. Slaughter
-------------------------
Director
JOHN B. SLAUGHTER
<PAGE>
POWER OF ATTORNEY OF DIRECTOR
-----------------------------
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Director of
International Business Machines Corporation, a New York corporation, which
will file with the Securities and Exchange Commission, Washington, D.C., under
the provisions of the Securities Law, an Annual Report for 1996 on Form 10-K,
hereby constitutes and appoints Louis V. Gerstner, Jr., G. Richard Thoman,
Lawrence R. Ricciardi, John R. Joyce, Jeffrey D. Serkes, and John E. Hickey his
true and lawful attorneys-in-fact and agents, and each of them with full power
to act without the others, for him or her and in his or her name, place and
stead, in any and all capacities, to sign said 10-K Annual Report and any and
all amendments thereto, and any and all other documents in connection
therewith, with the Securities and Exchange Commission, hereby granting unto
said attorneys-in-fact and agents, and each of them, full power and authority
to do and perform any and all acts and things requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as he or
she might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 25th day of February, 1997.
---- --------
/s/ Alex Trotman
-------------------------
Director
ALEX TROTMAN
<PAGE>
POWER OF ATTORNEY OF DIRECTOR
-----------------------------
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Director of
International Business Machines Corporation, a New York corporation, which
will file with the Securities and Exchange Commission, Washington, D.C., under
the provisions of the Securities Law, an Annual Report for 1996 on Form 10-K,
hereby constitutes and appoints Louis V. Gerstner, Jr., G. Richard Thoman,
Lawrence R. Ricciardi, John R. Joyce, Jeffrey D. Serkes, and John E. Hickey his
true and lawful attorneys-in-fact and agents, and each of them with full power
to act without the others, for him or her and in his or her name, place and
stead, in any and all capacities, to sign said 10-K Annual Report and any and
all amendments thereto, and any and all other documents in connection
therewith, with the Securities and Exchange Commission, hereby granting unto
said attorneys-in-fact and agents, and each of them, full power and authority
to do and perform any and all acts and things requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as he or
she might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 25th day of February, 1997.
---- --------
/s/ Charles M. Vest
-------------------------
Director
CHARLES M. VEST
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM IBM
CORPORATION'S FINANCIAL STATEMENTS FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 7,687
<SECURITIES> 450
<RECEIVABLES> 16,515
<ALLOWANCES> 0
<INVENTORY> 5,870
<CURRENT-ASSETS> 40,695
<PP&E> 41,893
<DEPRECIATION> 24,486
<TOTAL-ASSETS> 81,132
<CURRENT-LIABILITIES> 34,000
<BONDS> 0
7,752
0
<COMMON> 253
<OTHER-SE> 13,623
<TOTAL-LIABILITY-AND-EQUITY> 81,132
<SALES> 36,316
<TOTAL-REVENUES> 75,947
<CGS> 23,396
<TOTAL-COSTS> 45,408
<OTHER-EXPENSES> 21,943
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 716
<INCOME-PRETAX> 8,587
<INCOME-TAX> 3,158
<INCOME-CONTINUING> 5,429
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,429
<EPS-PRIMARY> 10.24
<EPS-DILUTED> 10.02
</TABLE>
<PAGE>
EXHIBIT V
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
ADDITIONAL EXHIBITS
A supplemental Consolidated Statement of Earnings schedule has been provided
for informational purposes only, to exclude the effects of a $435 million
non-recurring, non-tax deductible charge for purchased in-process research and
development in connection with the Tivoli Systems, Inc. and Object Technology
International, Inc. acquisitions in March, 1996. The 1995 results also exclude
the effects of the third quarter charge of $1,840 million for purchased
in-process research and development in connection with the Lotus Development
Corporation acquisition. This supplemental statement is shown in Exhibit V(a).
These charges are discussed on pages 54 and 55 of IBM's 1996 Annual Report
to Stockholders.
<PAGE>
EXHIBIT V(A)
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
SUPPLEMENTAL CONSOLIDATED STATEMENT OF EARNINGS*
1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) 1996 1995
- -------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Revenue:
Hardware sales............................................................................ $ 36,316 $ 35,600
Services ................................................................................. 15,873 12,714
Software.................................................................................. 13,052 12,657
Maintenance............................................................................... 6,981 7,409
Rentals and financing .................................................................... 3,725 3,560
--------- ---------
Total revenue............................................................................... 75,947 71,940
Cost:
Hardware sales............................................................................ 23,396 21,863
Services ................................................................................. 12,647 10,041
Software.................................................................................. 4,082 4,428
Maintenance............................................................................... 3,659 3,652
Rentals and financing .................................................................... 1,624 1,589
--------- ---------
Total cost.................................................................................. 45,408 41,573
Gross profit................................................................................ 30,539 30,367
Operating expenses:
Selling, general and administrative....................................................... 16,854 16,766
Research, development and engineering..................................................... 4,654 4,170
--------- ---------
Total operating expenses.................................................................... 21,508 20,936
Operating income............................................................................ 9,031 9,431
Other income, principally interest.......................................................... 707 947
Interest expense............................................................................ 716 725
--------- ---------
Earnings before income taxes................................................................ 9,022 9,653
Provision for income taxes ................................................................. 3,158 3,635
--------- ---------
Net earnings ............................................................................... 5,864 6,018
Preferred stock dividends and transaction costs ............................................ 20 62
Net earnings applicable to common shareholders.............................................. $ 5,844 $ 5,956
--------- ---------
--------- ---------
Net earnings per share common stock......................................................... $ 11.06 $ 10.46
--------- ---------
--------- ---------
Average number of common shares outstanding (millions) ..................................... 528.4 569.4
</TABLE>
- ------------------------
* See text in Exhibit V
