UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1997
1-2360
------------------------
(Commission file number)
INTERNATIONAL BUSINESS MACHINES CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 13-0871985
------------------------ ------------------------------------
(State of incorporation) (IRS employer identification number)
Armonk, New York 10504
- ---------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
914-765-1900
-------------------------------
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section l3 or l5(d) of the Securities Exchange Act of
1934 during the preceding 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 |_|
The registrant has 993,150,508* shares of common stock outstanding at March
31, 1997.
* Adjusted to reflect a two-for-one stock split effective May 9, 1997.
<PAGE>
INDEX
Page
----
Part I - Financial Information:
Item 1. Consolidated Financial Statements
Consolidated Statement of Earnings for the three months
ended March 31, 1997 and 1996 .......................... 1
Consolidated Statement of Financial Position at
March 31, 1997 and December 31, 1996 ................... 2
Consolidated Statement of Cash Flows for the three months
ended March 31, 1997 and 1996 .......................... 4
Notes to Consolidated Financial Statements ............... 5
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition .... 6
Part II - Other Information .................................... 14
<PAGE>
ITEM 1.
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31:
(UNAUDITED)
(Dollars in millions except for per share amounts) 1997 1996
------- -------
Revenue:
Hardware sales $ 7,761 $ 7,708
Services 4,095 3,198
Software 2,950 3,037
Maintenance 1,603 1,749
Rentals and financing 899 867
------- -------
Total revenue 17,308 16,559
Cost:
Hardware sales 5,244 5,005
Services 3,297 2,577
Software 912 911
Maintenance 853 912
Rentals and financing 410 385
------- -------
Total cost 10,716 9,790
------- -------
Gross profit 6,592 6,769
Operating expenses:
Selling, general and administrative 3,684 3,697
Research, development and engineering 1,069 1,091
Purchased in-process research and development - 435
------- -------
Total operating expenses 4,753 5,223
Operating income 1,839 1,546
Other income, principally interest 185 150
Interest expense 172 149
------- -------
Earnings before income taxes 1,852 1,547
Income tax provision 657 773
------- -------
Net earnings 1,195 774
Preferred stock dividends and transaction costs 5 5
------- -------
Net earnings applicable to
common shareholders $ 1,190 $ 769
======= =======
Net earnings per share of common stock* $ 1.19 $ .71
Average number of common shares
outstanding* (millions) 1,003.4 1,088.6
Cash dividends per common share* $ .175 $ .125
* Adjusted to reflect a two-for-one stock split effective May 9, 1997.
(The accompanying notes are an integral part of the financial statements.)
-1-
<PAGE>
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(UNAUDITED)
ASSETS
(Dollars in millions) At March 31 At December 31
1997 1996
----------- --------------
Current assets:
Cash and cash equivalents $ 5,959 $ 7,687
Marketable securities - at cost, which
approximates market 504 450
Notes and accounts receivable - net
of allowances 15,739 17,446
Sales-type leases receivable 5,671 5,721
Inventories, at lower of average cost or market
Finished goods 1,273 1,413
Work in process 4,435 4,377
Raw materials 78 80
-------- --------
Total inventories 5,786 5,870
Prepaid expenses and other current assets 3,661 3,521
-------- --------
Total current assets 37,320 40,695
Plant, rental machines and other property 41,010 41,893
Less: accumulated depreciation 23,948 24,486
-------- --------
Plant, rental machines and other property - net 17,062 17,407
Software, less accumulated amortization
(1997, $12,288; 1996, $12,199) 1,220 1,435
Investments and sundry assets 20,925 21,595
-------- --------
Total assets $ 76,527 $ 81,132
======== ========
-2-
<PAGE>
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION - (CONTINUED)
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
(Dollars in millions) At March 31 At December 31
1997 1996
----------- -------------
Current liabilities:
Taxes $ 2,221 $ 3,029
Accounts payable and accruals 15,777 18,014
Short-term debt 13,243 12,957
--------- --------
Total current liabilities 31,241 34,000
Long-term debt 10,402 9,872
Other liabilities 13,480 14,005
Deferred income taxes 1,453 1,627
--------- --------
Total liabilities 56,576 59,504
Stockholders' equity:
Preferred stock - par value $.01 per share 253 253
Shares authorized - 150,000,000
Shares issued: 1997 - 2,610,711
1996 - 2,610,711
Common stock - par value $.50* per share 7,906 7,752
Shares authorized - 1,875,000,000*
Shares issued: 1997 - 1,021,884,248*
1996 - 1,018,141,084*
Retained earnings 12,194 11,189
Translation adjustments 1,545 2,401
Treasury stock - at cost (2,125) (135)
Shares: 1997 - 28,733,740*
1996 - 2,179,066*
Net unrealized gain on marketable securities 178 168
--------- --------
Total stockholders' equity 19,951 21,628
--------- --------
Total liabilities and stockholders' equity $ 76,527 $ 81,132
========= ========
* Adjusted to reflect a two-for-one stock split effective May 9, 1997.
(The accompanying notes are an integral part of the financial statements.)
-3-
<PAGE>
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31:
(UNAUDITED)
(Dollars in millions) 1997 1996
------- -------
Cash flow from operating activities:
Net earnings $ 1,195 $ 774
Adjustments to reconcile net earnings to
cash provided from operating activities:
Depreciation 916 891
Amortization of software 280 323
Effect of restructuring charges (218) (536)
Purchased in-process research and development - 435
Gain on disposition of fixed and other assets (27) (110)
Changes in operating assets and liabilities (1,797) (616)
------- -------
Net cash provided from operating activities 349 1,161
Cash flow from investing activities:
Payments for plant, rental machines
and other property, net of proceeds (1,053) (600)
Investment in software (65) (62)
Purchases of marketable securities and
other investments (114) (494)
Proceeds from marketable securities and
other investments 158 137
Acquisition of Tivoli Systems, Inc. - net - (716)
------- -------
Net cash used in investing activities (1,074) (1,735)
------- -------
Cash flow from financing activities:
Proceeds from new debt 2,192 963
Payments to settle debt (885) (1,458)
Short-term borrowings less
than 90 days - net (166) 977
Common stock transactions - net (1,847) (1,014)
Cash dividends paid (181) (141)
------- -------
Net cash used in financing activities (887) (673)
------- -------
Effect of exchange rate changes
on cash and cash equivalents (116) (59)
------- -------
Net change in cash and cash equivalents (1,728) (1,306)
Cash and cash equivalents at January 1 7,687 7,259
------- -------
Cash and cash equivalents at March 31 $ 5,959 $ 5,953
======= =======
(The accompanying notes are an integral part of the financial statements.)
-4-
<PAGE>
Notes to Consolidated Financial Statements
1. In the opinion of the management of International Business Machines
Corporation (the company), all adjustments necessary to a fair statement of the
results for the unaudited three month period have been made.
2. Earnings per share amounts were computed by dividing earnings after deduction
of preferred stock dividends by the average number of common shares outstanding.
3. In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) 128,"Earnings per Share." SFAS 128
specifies the computation, presentation and disclosure requirements for earnings
per share for entities with publicly held common stock or potential common
stock. This statement is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods. Earlier application
of this statement is not permitted. SFAS 128 requires restatement of all
prior-period earnings per share data previously presented. Reported earnings per
share would not change materially if the provisions of this statement were
applied.
4. On March 1, 1996, the company acquired all outstanding shares of Tivoli
Systems Inc. for approximately $800 million ($716 million in net cash). The
company engaged a nationally recognized, independent appraisal firm to express
an opinion on the fair market value of the assets acquired to serve as a basis
for allocation of the purchase price to the various classes of assets. The
company allocated the total purchase price as follows:
(Dollars in millions)
Tangible and intangible net assets $ 140
Purchased in-process research and development 417
Goodwill 280
Deferred tax liabilities related to identifiable
intangible assets (37)
-----
Total $ 800
=====
Purchased in-process research and development included the value of
software products still in development stage and not considered to have reached
technological feasibility.
In addition, an 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 to $435 million. In accordance with applicable
accounting rules, the $435 million was expensed upon acquisition in the first
quarter of 1996.
-5-
<PAGE>
5. A supplemental Consolidated Statement of Earnings schedule has been provided
for informational purposes only, to exclude the effects of the write-offs of
purchased in-process research and development associated with the Tivoli Systems
Inc. and Object Technology International, Inc. acquisitions recorded in the
first quarter of 1996. The supplemental schedule is shown in Exhibit 99 on page
17. This information is presented voluntarily and is provided solely to assist
in understanding the effects of these items on the Consolidated Statement of
Earnings.
6. Subsequent Events: On April 16, 1997, IBM and NetObjects, Inc. announced that
IBM had become a majority shareholder in NetObjects, Inc. IBM issued 519,116
shares of common stock at a price of $135.0375 to certain shareholders of
NetObjects by virtue of a merger of Net Acquisition Corp., a wholly owned
subsidiary of IBM, with and into NetObjects, Inc. The shares of IBM common stock
were issued to the NetObjects shareholders in a private placement, which is
exempt from SEC registration under Regulation D. The private placement of the
IBM shares took place on April 11, 1997.
On April 29, 1997, the stockholders of the company approved amendments to
the Certificate of Incorporation to increase the number of authorized shares of
common stock from 750 million to 1,875 million, which was required to effect a
two-for-one stock split approved by the company's Board of Directors on January
28, 1997. In addition, the amendments served to reduce the par value of the
common shares from $1.25 per share to $.50 per share. Common stockholders of
record at the close of business on May 9, 1997 received one additional share for
each share held.
The Consolidated Financial Statements in this Form 10-Q have been adjusted
to reflect the two-for-one stock split.
On April 29, 1997, the company announced that the Board of Directors had
approved a quarterly dividend increase of 14 percent from $.35 to $.40 per
common share or $.20 per common share after the two-for-one stock split. The
dividend is payable June 10, 1997 to shareholders of record on May 9, 1997.
On April 29, 1997, the Board of Directors also authorized the company to
repurchase up to an additional $3.5 billion of IBM common stock shares. The
company plans to buy shares, on the open market from time-to-time, depending on
market conditions.
On May 8, 1997, the company announced that it intends to buy the 30 percent
equity interest held by Sears in Advantis, the U.S. network services arm of the
IBM Global Network, for $450 million. Advantis is currently 70 percent owned by
IBM. The agreement is contingent upon satisfaction of customary closing
conditions and approval under the Hart-Scott-Rodino Act.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION FOR THE THREE MONTHS ENDED MARCH 31, 1997
The company's first quarter results showed strong performance in its
fast-growth areas including services, personal computers and certain distributed
software such as Lotus Notes* and Tivoli systems management products. In
addition, storage products had a good quarter.
-6-
<PAGE>
Results of Operations
As expected the server products were adversely affected by product
transitions, most notably within the System/390* products, and by ongoing
weakness in Europe, which hurt AS/400* sales. Overall, the results from the
fast-growing areas of the company more than offset the weakness from the server
products.
(Dollars in millions) Three Months Ended
March 31
------------------
1997 1996
-------- -------
Revenue $ 17,308 $ 16,559
Cost 10,716 9,790
-------- --------
Gross profit $ 6,592 $ 6,769
Gross profit margin 38.1% 40.9%
Net earnings $ 1,195 $ 774
The company recorded first-quarter 1997 earnings of $1,195 million or $1.19
per common share, compared with $ 774 million or $.71 per common share in the
first quarter of 1996. The company's first-quarter 1996 results included a
charge of $435 million ($.40 per common share) relating to a non-recurring,
non-tax deductible charge for purchased in-process research and development in
connection with the acquisition of Tivoli Systems Inc. ($417 million) and Object
Technology International, Inc. ($18 million). Excluding these items, the
company's adjusted earnings per common share was $1.11. The average number of
common shares outstanding for the period was 1,003.4 million in 1997 versus
1,088.6 million in 1996.
On an as-reported basis, first quarter revenue in the United States was
$7.3 billion, an increase of 17.8 percent from the same period a year ago.
Asia-Pacific revenue increased by 3.3 percent to $3.4 billion, while revenue
from Latin America was up 2.3 percent to $701 million. Revenue from
Europe/Middle East/Africa declined by 6.5 percent to $5.3 billion. Revenue from
Canada was $659 million, a decline of 12.7 percent from first quarter of 1996.
On a constant currency basis, Asia-Pacific revenue grew by 14 percent and
Europe/Middle East/Africa revenue grew by 1 percent.
The total gross profit margin was 38.1 percent in the first quarter
compared to 40.9 percent in the first quarter of last year. The decline was
primarily a result of the company's shift to 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.
In addition, the gross profit margin was lower due to the significant price
reduction in semiconductors year-over-year.
Total expenses were essentially flat compared with the first quarter of
1996.
-7-
<PAGE>
Results of Operations - (continued)
Hardware Sales
(Dollars in millions) Three Months Ended
March 31
------------------
1997 1996
------- -------
Total revenue $ 7,761 $ 7,708
Total cost 5,244 5,005
------- -------
Gross profit $ 2,517 $ 2,703
Gross profit margin 32.4% 35.1%
Hardware sales revenue was essentially flat when compared to the first
quarter of 1996. Revenue from hardware sales was negatively affected by
approximately 4 points from currency in the quarter.
Personal computer and PC server revenue increased as demand was strong for
these products in the United States and Asia Pacific. Revenue from storage
products increased due to continued strong sales of hard disk drives, open
systems DASD and tape products, offset by lower revenue associated with high-end
DASD. These increases were partially offset by lower revenue from RISC
System/6000*, AS/400 and System/390 servers. Semiconductor revenue declined
slightly as a result of the significant drop in DRAM prices year-over-year,
offset by growth in logic and custom logic products.
Hardware sales gross profit dollars decreased 6.9 percent when compared to
the first quarter of 1996. The decrease was driven by a change in the mix of
products being sold to lower gross profit products, such as personal computers,
and lower semiconductor margins. The overall hardware sales margin continues to
be adversely impacted by pricing pressures across all products.
Services Other Than Maintenance
(Dollars in millions) Three Months Ended
March 31
------------------
1997 1996
------- -------
Total revenue $ 4,095 $ 3,198
Total cost 3,297 2,577
------- -------
Gross profit $ 798 $ 621
Gross profit margin 19.5% 19.4%
Services revenue increased 28.0 percent, when compared to the first quarter
of 1996. Services revenue was negatively affected by about 6 points from
currency in the quarter. The increase was driven by strong growth in most
categories of service offerings. The company signed service agreements totaling
about $3 billion in the quarter. Services gross profit dollars increased by 28.5
percent over the first quarter of 1996.
-8-
<PAGE>
Results of Operations - (continued)
Software
(Dollars in millions) Three Months Ended
March 31
------------------
1997 1996
------- -------
Total revenue $ 2,950 $ 3,037
Total cost 912 911
------- -------
Gross profit $ 2,038 $ 2,126
Gross profit margin 69.1% 70.0%
Revenue from software decreased 2.9 percent from the first quarter of 1996.
Software revenue was negatively affected by approximately 5 points from currency
in the quarter. The decrease was a result of lower host-based computer software
revenue associated with lower AS/400 volumes and flat year-to-year growth in
System/390 products. These decreases were partially offset by strong revenue
growth for distributed software offerings from Lotus Notes and systems
management software from Tivoli.
Software gross profit dollars decreased 4.1 percent from the first quarter
of 1996. The decrease was primarily a result of higher vendor royalty costs
incurred in the first quarter of 1997 versus 1996.
Maintenance
(Dollars in millions) Three Months Ended
March 31
------------------
1997 1996
------- -------
Total revenue $ 1,603 $ 1,749
Total cost 853 912
------- -------
Gross profit $ 750 $ 837
Gross profit margin 46.8% 47.8%
Maintenance revenue decreased 8.3 percent from the first quarter of 1996.
Maintenance revenue was negatively impacted by about 4 points from currency in
the quarter. The gross profit dollars decreased 10.4 percent when compared to
the first quarter of 1996. Maintenance revenue and gross profit margins continue
to be affected by price reductions on maintenance offerings.
-9-
<PAGE>
Results of Operations - (continued)
Rentals and Financing
(Dollars in millions) Three Months Ended
March 31
------------------
1997 1996
------- -------
Total revenue $ 899 $ 867
Total cost 410 385
------- -------
Gross profit $ 489 $ 482
Gross profit margin 54.4% 55.6%
Rentals and financing revenue increased 3.7 percent when compared to the
same period in 1996. Revenue from rentals and financing was negatively affected
by approximately 4 points from currency in the quarter. The increase in revenue
was primarily due to higher operating lease activity in 1997 versus the first
quarter of 1996. Gross profit dollars increased 1.5 percent when compared to the
first quarter of 1996.
Expenses
(Dollars in millions) Three Months Ended
March 31
------------------
1997 1996
------- -------
Selling, general and
administrative $ 3,684 $ 3,697
Percentage of revenue 21.3% 22.3%
Research, development and
engineering $ 1,069 $ 1,091
Percentage of revenue 6.2% 6.6%
Selling, general and administrative expense was essentially flat from first
quarter 1996. Currency had a benefit of about 3 points in the first quarter of
1997. The company continues to invest in more variable based high-yield
programs, such as advertising, business partner programs, expenditures
associated with new acquisitions, while continuing to focus on reducing fixed
infrastructure costs.
Research, development and engineering expense decreased 2.0 percent
from the first quarter of 1996.
The first-quarter 1996 results included a non-tax deductible charge of $435
million for purchased-in process research and development expense associated
with the acquisition of Tivoli Systems Inc. and Object Technology International,
Inc. This amount has been separately identified on the company's Consolidated
Statement of Earnings.
-10-
<PAGE>
Results of Operations - (continued)
Interest on total borrowings of the company and its subsidiaries, which
includes interest expense and interest costs associated with rentals and
financing, amounted to $377 million for the first quarter of 1997. Of this
amount, $9 million was capitalized.
The effective tax rate for the three months of 1997 was 35.5 percent versus
50.0 percent for the same period in 1996. This decrease was primarily a result
of the $435 million charge associated with the Tivoli Systems Inc. and Object
Technology International Inc. acquisitions, which did not give rise to a tax
benefit in 1996. Excluding this charge, the effective tax rate from operations
would have been 39.0 percent for the first quarter of 1996. The 3.5 point
decrease in the effective tax rate from operations in 1997 versus 1996 is
primarily the result of the mix of earnings and corresponding weighting of tax
rates on a country-by-country basis. The company continues to perform
assessments of the realizability of the net deferred tax assets.
Financial Condition
The company's financial condition remained strong throughout the first
quarter of 1997, enabling expenditures of $2.0 billion for the repurchase of the
company's common shares, and investments of $1.3 billion in plant, rental
machines, and other property, while ending the quarter with $6.5 billion in
cash, cash equivalents and marketable securities.
Cash Flow
(Dollars in millions) Three Months Ended
March 31
------------------
1997 1996
------- -------
Net cash provided from (used in):
Operating activities $ 349 $ 1,161
Investing activities (1,074) (1,735)
Financing activities (887) (673)
------- -------
Effect of exchange rate changes
on cash and cash equivalents (116) (59)
------- -------
Net change in cash and cash equivalents $(1,728) $(1,306)
-11-
<PAGE>
Financial Condition - (continued)
Working Capital
(Dollars in millions) At March 31 At December 31
1997 1996
------------ --------------
Current assets $ 37,320 $ 40,695
Current liabilities 31,241 34,000
-------- --------
Working capital $ 6,079 $ 6,695
Current ratio 1.19:1 1.20:1
The company maintained a healthy current ratio of 1.19 to 1. Current assets
declined $3.4 billion from year-end 1996 with declines $1.7 billion in cash,
cash equivalents, and marketable securities and $1.8 billion in accounts
receivable, offset by an increase of $.1 billion in prepaid expenses. The
decrease in cash, cash equivalents and marketable securities results primarily
from the share repurchases, and capital expenditures, offset by cash generated
from operations and debt financing. The decline in accounts receivable is
attributable to the lower volumes normally associated with the first quarter,
while prepaid expenses reflect the seasonal increase in prepaid expenses from
year-end levels.
Current liabilities declined $2.8 billion, with declines of $3.1 billion in
accruals, taxes and accounts payable (resulting primarily from seasonal declines
in these balances from their normally higher year-end levels), offset by an
increase of $.3 billion in short-term debt to support the growth in customer
financing assets.
Investments
The company's capital investments for plant, rental machines, and other
property were $1.3 billion during the first quarter of 1997, an increase of $.3
billion from the comparable 1996 period. The increase reflects the company's
continued investment in its rapidly growing services business, as well as in the
areas of storage products and microelectronics.
In addition to software development expenses included in research,
development and engineering expense, the company capitalized $.1 billion of
software costs during the first three months of both 1997 and 1996. Amortization
of capitalized software costs amounted to $.3 billion during the first quarter
of both 1997 and 1996.
Investments and sundry assets were $20.9 billion at March 31, 1997, a
decrease of $.7 billion from year-end 1996, resulting primarily from a decrease
in non-current sales-type lease receivables, and the amortization of goodwill
associated with the company's strategic acquisitions.
Other Non-Current Liabilities
Other non-current liabilities of $13.5 billion at March 31, 1997, declined
$.5 billion from year-end 1996 primarily due to reductions in restructuring
accrual balances related to pre-1996 restructuring programs, and in non-U.S.
retirement reserves.
-12-
<PAGE>
Financial Condition - (continued)
(Dollars in millions) At March 31 At December 31
1997 1996
------------ --------------
"Core" debt $ 2,201 $ 2,202
Customer financing debt 21,444 20,627
-------- --------
Total debt $ 23,645 $ 22,829
Stockholders' Equity $ 19,951 $ 21,628
Debt/capitalization 54.2% 51.4%
Customer financing debt/equity 6.5:1 6.3:1
Total debt increased $.8 billion from year-end 1996 in support of customer
financing. Stockholders' equity declined $1.7 billion from December 31, 1996 as
the increase in the company's retained earnings was more than offset by the
significant common share repurchases and the currency effect of the stronger
U.S. dollar on the company's foreign net assets.
Liquidity
The company maintains a $10.0 billion committed global credit facility as
part of its ongoing efforts to ensure appropriate levels of liquidity. As of
March 31, 1997, $9.1 billion of this confirmed line of credit remains unused and
available for future use.
At March 31, 1997, the company had a net balance of $1.0 billion in assets
under management from the securitization of lease and trade receivables.
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-.
-13-
<PAGE>
Part II - Other Information
Item 6(a). Exhibits
Exhibit Number
- --------------
11 Statement re: computation of per share earnings.
12 Statement re: computation of ratios.
99 Supplemental Consolidated Statement of Earnings schedule.
Item 6(b). Reports on Form 8-K
A Form 8-K dated January 21, 1997 was filed with respect to the company's
financial results for the periods ended December 31, 1996 and included unaudited
consolidated financial statements for the periods ended December 31, 1996.
A Form 8-K dated January 28, 1997 was filed regarding the decision of the
company's board of directors to declare a two-for-one stock split of the
company's common stock, subject to stockholder approval of an increase in the
company's authorized shares of common stock. No financial statements were filed
with this Form 8-K.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
International Business Machines Corporation
-------------------------------------------
(Registrant)
Date: May 12, 1997
By:
John R. Joyce
-------------------------------------------------
John R. Joyce
Vice President and Controller
* S/390, AS/400 and RISC System/6000 are trademarks of the
International Business Machines Corporation. Lotus Notes
is a trademark of Lotus Development Corporation.
-14-
EXHIBIT 11
COMPUTATION OF FULLY DILUTED EARNINGS PER
SHARE UNDER TREASURY STOCK METHOD SET FORTH
IN ACCOUNTING PRINCIPLES BOARD OPINION NO. 15
For Three Months Ended
-------------------------------
March 31, 1997 March 31, 1996
-------------- --------------
Number of shares on which earnings
per share is based:
Average outstanding during period* 1,003,437,050 1,088,607,044
Add - Incremental shares under stock
option and stock purchase plans* 19,561,758 22,124,960
-------------- --------------
Number of shares on which fully diluted
earnings per share is based* 1,022,998,808 1,110,732,004
============== ==============
Net earnings applicable to
common shareholders (millions) $ 1,190 $ 769
-------------- --------------
Net earnings on which fully
diluted earnings per share
is based (millions) $ 1,190 $ 769
============== ==============
Fully diluted earnings per share* $ 1.16 $ .69
Published earnings per share* $ 1.19 $ .71
* Adjusted to reflect a two-for-one stock split effective May 9, 1997.
EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
FOR THREE MONTHS ENDED MARCH 31:
(UNAUDITED)
(Dollars in millions)
1997 1996
-------- --------
Earnings before income taxes(1) $ 1,861 $ 1,567
Add:
Fixed charges, excluding capitalized interest 470 468
-------- --------
Earnings as adjusted $ 2,331 $ 2,035
======== ========
Fixed charges:
Interest expense $ 371 $ 369
Capitalized interest 9 7
Portion of rental expense representative of
interest 94 99
-------- --------
Total fixed charges $ 474 $ 475
======== ========
Preferred stock dividends(2) 8 10
-------- --------
Combined fixed charges and preferred stock
dividends $ 482 $ 485
======== ========
Ratio of earnings to fixed charges 4.92 4.28
Ratio of earnings to combined fixed charges and
preferred stock dividends 4.84 4.20
(1) Earnings before income taxes excludes the company's share in the
income and losses of less-than-fifty percent-owned affiliates.
(2) Included for the ratio computation for the quarter ended March 31, 1997
and 1996, respectively, are preferred stock dividends of $5 million, or $8
million and $10 million, respectively, representing the pre-tax earnings
which would be required to cover such dividend requirements based on the
company's effective tax rate for the quarter ended March 31, 1997 and 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
IBM CORPORATION'S FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 5,959
<SECURITIES> 504
<RECEIVABLES> 15,739
<ALLOWANCES> 0
<INVENTORY> 5,786
<CURRENT-ASSETS> 37,320
<PP&E> 41,010
<DEPRECIATION> 23,948
<TOTAL-ASSETS> 76,527
<CURRENT-LIABILITIES> 31,241
<BONDS> 0
0
253
<COMMON> 7,906
<OTHER-SE> 11,792
<TOTAL-LIABILITY-AND-EQUITY> 76,527
<SALES> 7,761
<TOTAL-REVENUES> 17,308
<CGS> 5,244
<TOTAL-COSTS> 10,716
<OTHER-EXPENSES> 4,753
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 172
<INCOME-PRETAX> 1,852
<INCOME-TAX> 657
<INCOME-CONTINUING> 1,195
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,195
<EPS-PRIMARY> 1.19
<EPS-DILUTED> 1.16
</TABLE>
EXHIBIT 99
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF EARNINGS*
SUPPLEMENTAL SCHEDULE
FOR THE THREE MONTHS ENDED MARCH 31: (UNAUDITED)
(Dollars in millions except for per share amounts) 1997 1996
------- -------
Revenue:
Hardware sales $ 7,761 $ 7,708
Services 4,095 3,198
Software 2,950 3,037
Maintenance 1,603 1,749
Rentals and financing 899 867
------- -------
Total revenue 17,308 16,559
Cost:
Hardware sales 5,244 5,005
Services 3,297 2,577
Software 912 911
Maintenance 853 912
Rentals and financing 410 385
------- -------
Total cost 10,716 9,790
------- -------
Gross profit 6,592 6,769
Operating expenses:
Selling, general and administrative 3,684 3,697
Research, development and engineering 1,069 1,091
------- -------
Total operating expenses 4,753 4,788
------- -------
Operating income 1,839 1,981
Other income, principally interest 185 150
Interest expense 172 149
------- -------
Earnings before income taxes 1,852 1,982
Income tax provision 657 773
------- -------
Net earnings 1,195 1,209
Preferred stock dividends and transaction costs 5 5
------- -------
Net earnings applicable to
common shareholders $ 1,190 $ 1,204
======= =======
Net earnings per share of common stock** $ 1.19 $ 1.11
* Supplemental information provided for comparative purposes:
1996 excludes a non-recurring, non-tax deductible charge of
$435 million ($.40 per common share) for purchased in-process
research and development in connection with the acquisitions of
Tivoli Systems, Inc. and Object Technology International, Inc.
** Adjusted to reflect a two-for-one stock split effective May 9, 1997
