-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, A7yXGcMtGfsa7OxREuj9A7HM2Iv5OCO7PScz0mMhIt/jPFal6TfYzZOiYzwBhA0M 7nQpk+bagDBXIlyBJC4x7Q== 0000950112-94-000794.txt : 19940331 0000950112-94-000794.hdr.sgml : 19940331 ACCESSION NUMBER: 0000950112-94-000794 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL BUSINESS MACHINES CORP CENTRAL INDEX KEY: 0000051143 STANDARD INDUSTRIAL CLASSIFICATION: 3570 IRS NUMBER: 130871985 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-02360 FILM NUMBER: 94518258 BUSINESS ADDRESS: STREET 1: OLD ORCHARD RD CITY: ARMONK STATE: NY ZIP: 10504 BUSINESS PHONE: 9147651900 10-K 1 IBM CORPORATION - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, 1993 1-2360 (Commission File Number) INTERNATIONAL BUSINESS MACHINES CORPORATION (Exact name of registrant as specified in its charter) NEW YORK 13-0871985 (STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NUMBER) ARMONK, NEW YORK 10504 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) 914-765-1900 (Registrant's telephone number) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: VOTING SHARES OUTSTANDING NAME OF EACH EXCHANGE TITLE OF EACH CLASS AT FEBRUARY 10, 1994 ON WHICH REGISTERED - --------------------------- ------------------------- ------------------------ Capital stock, par value 582,112,340 New York Stock Exchange $1.25 per share Midwest Stock Exchange Pacific Stock Exchange Depositary shares each New York Stock Exchange representing one-fourth of a share of 7 1/2% Preferred stock, par value $ .01 per share 6 3/8% Notes due 1997 New York Stock Exchange 9% Notes due 1998 New York Stock Exchange 6 3/8% Notes due 2000 New York Stock Exchange 7 1/4% Notes due 2002 New York Stock Exchange 7 1/2% Debentures due 2013 New York Stock Exchange 8 3/8% Debentures due 2019 New York Stock Exchange 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 February 10, 1994 was $30.8 billion. Documents incorporated by reference: Portions of IBM's Annual Report to Stockholders for the year ended December 31, 1993 into Parts I and II of Form 10-K. Portions of IBM's definitive Proxy Statement dated March 14, 1994 into Part III of Form 10-K. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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. IBM offers value worldwide through its United States, Canada, Europe/Middle East/Africa, Latin America, and Asia/Pacific business units, 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. 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 1993 Annual Report to Stockholders and is incorporated herein by reference: 1. Segment information and revenue by classes of similar products or services--Pages 59 and 60 2. Financial information by geographic areas--Pages 61 and 62 3. Amount spent during each of the last three years on research and development activities--Page 45 4. The number of persons employed by the registrant--Page 31 5. Management discussion overview --Pages 20 and 21 ITEM 2. PROPERTIES: At December 31, 1993, IBM's manufacturing and development facilities in the United States had aggregate floor space of 57.4 million square feet, of which 46.6 million was owned and 10.8 million was leased. Of these amounts, 4.3 million square feet was vacant and .7 million square feet was being leased to non-IBM businesses. Similar facilities in 15 other countries totaled 21.8 million square feet, of which 18.3 million was owned and 3.5 million was leased. Of these amounts, .6 million square feet was vacant and .3 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 and other property, refer to page 27 (Investments) of IBM's 1993 Annual Report to Stockholders which is incorporated herein by reference. ITEM 3. LEGAL PROCEEDINGS: No material pending legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: Not applicable. 1 PART I (CONTINUED) EXECUTIVE OFFICERS OF THE REGISTRANT (AT MARCH 28, 1994):
OFFICER AGE SINCE ----------- ----------- Chairman of the Board of Directors and Chief Executive Officer Louis V. Gerstner, Jr.(1)....................................................................... 52 1993 Vice Chairman of the Board of Directors Paul J. Rizzo(1)................................................................................ 66 1993 Senior Vice Presidents James A. Cannavino, Strategy and Development.................................................... 49 1988 Gerald M. Czarnecki, Human Resources and Administration......................................... 54 1993 Donato A. Evangelista, General Counsel.......................................................... 61 1983 Ellen M. Hancock, Group Executive............................................................... 50 1985 Robert J. LaBant, Group Executive............................................................... 48 1989 Ned C. Lautenbach, Group Executive.............................................................. 50 1987 G. Richard Thoman, Group Executive.............................................................. 49 1993 John M. Thompson, Group Executive............................................................... 51 1989 Patrick A. Toole, Group Executive............................................................... 56 1984 Jerome B. York, Chief Financial Officer......................................................... 55 1993 Vice President and Controller Lawrence A. Zimmerman........................................................................... 51 1991 Vice President and Treasurer Frederick W. Zuckerman.......................................................................... 59 1993
- ------------ (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 Gerald M. Czarnecki, Louis V. Gerstner, Jr., Paul J. Rizzo, G. Richard Thoman, Jerome B. York, and Frederick W. Zuckerman has been an officer or an executive of IBM or its subsidiaries during the past five years. Mr. Czarnecki was the chairman of the board and chief executive officer, of Bank of America-Hawaii from 1992 until joining IBM in 1993. From 1987 to 1992, he was chairman of the board and chief executive officer of HonFed Bank in Honolulu, Hawaii. Mr. Gerstner was the chairman of the board and chief executive officer of RJR Nabisco Holdings Corporation from 1989 until joining IBM in 1993. From 1985 to 1989, he was chairman and chief executive officer of American Express Travel Related Services Co., Inc. Mr. Rizzo was the Dean of the Kenan-Flagler Business School at the University of North Carolina-Chapel Hill from 1987 to 1992. He then became a partner in Franklin Street Partners, a Chapel Hill investment firm. He rejoined IBM in 1993, having previously retired in 1988. Mr. Thoman was the president of Nabisco International from 1992 until joining IBM in 1993. From 1985 to 1989, he was president of American Express Travel Related Services International, and co-CEO of American Express Travel Related Services Co., and CEO of American Express International from 1989 to 1992. Mr. York was the executive vice president-finance and chief financial officer of Chrysler Corporation from 1990 until joining IBM in 1993. From 1979 to 1990, he had also served as vice president and controller at Chrysler, vice president in charge of the company's Dodge car and truck division, and managing director of its operations in Mexico. Mr. Zuckerman was the senior vice president and treasurer of RJR Nabisco from 1991 until joining IBM in 1993. From 1981 to 1991, he was the corporate vice president and treasurer of Chrysler Corporation. 2 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS: Refer to page 63 and the inside back cover of IBM's 1993 Annual Report to Stockholders which are incorporated herein by reference solely as they relate to this item. There were 738,948 common stockholders of record at February 10, 1994. ITEM 6. SELECTED FINANCIAL DATA: Refer to page 63 of IBM's 1993 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 20 through 31 of IBM's 1993 Annual Report to Stockholders which are incorporated herein by reference. On March 1, 1994, Loral Corporation completed its acquisition of the Federal Systems Company for $1.503 billion in cash. The amount of any gain resulting from this sale may be dependent on future performance of the Advanced Automation System contract for the Federal Aviation Authority and certain other open matters. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA: Refer to pages 18 and 19 and 32 through 62 of IBM's 1993 Annual Report to Stockholders which are incorporated herein by reference. Also refer to the Financial Statement Schedules on pages S-1 to S-5 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 2 through 4 and 7 of IBM's definitive Proxy Statement dated March 14, 1994 which are incorporated herein by reference solely as they relate to this item. Also refer to the Item entitled "Executive Officers of the Registrant" in Part I of this Form. ITEM 11. EXECUTIVE COMPENSATION: Refer to pages 9 through 16 of IBM's definitive Proxy Statement dated March 14, 1994, which are incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT: (A) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS: Not applicable. (B) SECURITY OWNERSHIP OF MANAGEMENT: Refer to the section entitled "Stock Ownership" appearing on pages 7 and 8 of IBM's definitive Proxy Statement dated March 14, 1994, which is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS: Refer to page 7 (Other Relationships) of IBM's definitive Proxy Statement dated March 14, 1994, which is incorporated herein by reference. 3 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 1993 ANNUAL REPORT TO STOCKHOLDERS WHICH ARE INCORPORATED HEREIN BY REFERENCE: Report of Independent Accountants (page 19). Consolidated Statement of Operations for the years ended December 31, 1993, 1992 and 1991 (page 32). Consolidated Statement of Financial Position at December 31, 1993 and 1992 (page 33). Consolidated Statement of Cash Flows for the years ended December 31, 1993, 1992 and 1991 (page 34). Consolidated Statement of Stockholders' Equity at December 31, 1993, 1992 and 1991 (page 35). Notes to Consolidated Financial Statements (pages 36 through 62). 2. FINANCIAL STATEMENT SCHEDULES REQUIRED TO BE FILED BY ITEM 8 OF THIS FORM:
SCHEDULE PAGE NUMBER - ----------- ----------- 7 Report of Independent Accountants on Financial Statement Schedules. S-1 V-- Plant, Rental Machines and Other Property. S-2 VI-- Accumulated Depreciation of Plant, Rental Machines and Other Property. S-3 VIII-- Valuation and Qualifying Accounts. S-4 IX-- Short-Term Borrowings. S-5 X-- Supplementary Income Statement Information.
All other schedules are omitted as the required matter is not present, the amounts are not significant or the information is shown in the financial statements or the notes thereto. 3. EXHIBITS: INCLUDED IN THIS FORM 10-K: I-- Computation of Fully Diluted Earnings Per Share. II-- Parents and Subsidiaries. III-- Consent of Independent Accountants. IV-- Additional Exhibits (a) Quarterly Consolidated Statement of Operations--Restated 1993. V-- The By-laws of IBM as amended through November 30, 1993. VI-- The Certificate of Incorporation of IBM as restated April 27, 1992, and filed May 27, 1992, as amended through May 28, 1993. VII-- IBM's 1993 Annual Report to Stockholders, certain sections of which have been incorporated herein by reference. VIII-- Powers of Attorney.
4 PART IV (CONTINUED) NOT INCLUDED IN THIS FORM 10-K: -- A copy of the IBM 1989 Long-Term Performance Plan, a management compensatory plan, is contained in Registration Statement No. 33-29022 on Form S-8, filed on May 31, 1989, and is hereby incorporated by reference. -- Board of Directors compensatory plans, as described under Directors' Compensation on page 7 of IBM's definitive Proxy Statement dated March 14, 1994, which is incorporated herein 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(1) to Registration Statement No. 33-33590 on Form S-3, filed on February 22, 1990, and are hereby incorporated by reference. -- The instruments defining the rights of the holders of the 9% Notes due 1998 are Exhibit 4 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1985, and Exhibit 4(b) to Registration Statement No. 33-6889 on Form S-3, filed on July 1, 1986, and are hereby incorporated by reference. -- The instruments defining the rights of the holders of the 6 3/8% Notes due 2000 and the 7 1/2% Debentures due 2013 are Exhibits 4(a) through 4(1) to Registration Statement No. 33-49475(1) on Form S-3, filed May 24, 1993, and are hereby incorporated by reference. -- The instruments defining the rights of holders of the 8 3/8% Debentures due 2019 are Exhibits 4(a)(b)(c) and (d) to Registration Statement 33-31732 on Form S-3, filed on October 24, 1989, and are hereby incorporated by reference. -- IBM's definitive Proxy Statement dated March 14, 1994, certain sections of which have been incorporated herein by reference. (B) REPORTS ON FORM 8-K: -- No reports on Form 8-K were filed during the last quarter of 1993. 5 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: LOUIS V. GERSTNER, JR. .................................. (LOUIS V. GERSTNER, JR. CHAIRMAN OF THE BOARD OF DIRECTORS AND CHIEF EXECUTIVE OFFICER) Date: March 28, 1994 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 - -------------------------------------------- ------------------ ------------------------------------------ JEROME B. YORK Senior Vice March 28, 1994 ............................................ President (JEROME B. YORK) and Chief Financial Officer LAWRENCE A. ZIMMERMAN Vice President March 28, 1994 ............................................ and (LAWRENCE A. ZIMMERMAN) Controller HAROLD BROWN Director JAMES E. BURKE Director THOMAS F. FRIST, JR. Director FRITZ GERBER Director JUDITH RICHARDS HOPE Director NANNERL O. KEOHANE Director CHARLES F. KNIGHT Director THOMAS S. MURPHY Director By: JOHN E. HICKEY ............................... (JOHN E. HICKEY) JOHN R. OPEL Director ATTORNEY-IN-FACT PAUL J. RIZZO Vice Chairman March 28, 1994 of the Board JOHN B. SLAUGHTER Director LODEWIJK C. VAN WACHEM Director EDGAR S. WOOLARD, JR. Director
6 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES To the Board of Directors of INTERNATIONAL BUSINESS MACHINES CORPORATION Our audits of the consolidated financial statements referred to in our report dated February 16, 1994 (which refers to the changes in the methods of accounting for postemployment benefits in 1993, income taxes in 1992, and nonpension postretirement benefits in 1991) appearing on page 19 of the 1993 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 Schedules listed in Item 14(a)2 of this Form 10-K. In our opinion, these Financial Statement Schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PRICE WATERHOUSE 1177 Avenue of the Americas New York, N.Y. 10036 February 16, 1994 7 SCHEDULE V INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES PLANT, RENTAL MACHINES AND OTHER PROPERTY FOR THE YEAR ENDED DECEMBER 31: (DOLLARS IN MILLIONS)
BALANCE AT RETIREMENTS, BALANCE BEGINNING ADDITIONS SALES AND TRANSLATION AT END DESCRIPTION OF PERIOD AT COST RECLASSIFICATIONS ADJUSTMENTS OF PERIOD - ----------------------------------------- ----------- ----------- ----------------- ------------- ----------- 1993 Land and land improvements............. $ 1,477 $ 12 $ 59 $ (8) $ 1,422 Buildings.............................. 13,839 278 641 (162) 13,314 Plant, laboratory and office equipment................................ 34,500 2,147 6,480 (338) 29,829 ----------- ----------- -------- ------------- ----------- 49,816 2,437 7,180 (508) 44,565 Rental machines and parts.............. 2,970 795 801 (25) 2,939 ----------- ----------- -------- ------------- ----------- Total......................... $ 52,786 $ 3,232 $ 7,981 $ (533) $ 47,504 ----------- ----------- -------- ------------- ----------- ----------- ----------- -------- ------------- ----------- 1992 Land and land improvements............. $ 1,604 $ 15 $ 71 $ (71) $ 1,477 Buildings.............................. 14,281 477 389 (530) 13,839 Plant, laboratory and office equipment................................ 36,490 3,721 4,549 (1,162) 34,500 ----------- ----------- -------- ------------- ----------- 52,375 4,213 5,009 (1,763) 49,816 Rental machines and parts.............. 3,303 485 714 (104) 2,970 ----------- ----------- -------- ------------- ----------- Total......................... $ 55,678 $ 4,698 $ 5,723 $ (1,867) $ 52,786 ----------- ----------- -------- ------------- ----------- ----------- ----------- -------- ------------- ----------- 1991 Land and land improvements............. $ 1,645 $ 19 $ 64 $ 4 $ 1,604 Buildings.............................. 13,792 833 361 17 14,281 Plant, laboratory and office equipment................................ 35,155 4,508 3,216 43 36,490 ----------- ----------- -------- ------------- ----------- 50,592 5,360 3,641 64 52,375 Rental machines and parts.............. 3,067 1,142 922 16 3,303 ----------- ----------- -------- ------------- ----------- Total......................... $ 53,659 $ 6,502 $ 4,563 $ 80 $ 55,678 ----------- ----------- -------- ------------- ----------- ----------- ----------- -------- ------------- -----------
DEPRECIATION: Plant, rental machines and other property are carried at cost and depreciated over their estimated useful lives using the straight-line method. With minor exceptions, the estimated useful lives of depreciable properties are as follows: Land improvements....................................... 20 years Buildings and building equipment........................ 5 to 50 years Plant, laboratory and office equipment.................. 2 to 16 years Rental machines......................................... 1 to 7 years S-1 SCHEDULE VI INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES ACCUMULATED DEPRECIATION OF PLANT, RENTAL MACHINES AND OTHER PROPERTY FOR THE YEAR ENDED DECEMBER 31: (DOLLARS IN MILLIONS)
ADDITIONS DEDUCTIONS ------------------ ----------------- BALANCE AT CHARGED TO COSTS, RETIREMENTS, BALANCE BEGINNING EXPENSES AND SALES AND TRANSLATION AT END DESCRIPTION OF PERIOD OTHER ACCOUNTS RECLASSIFICATIONS ADJUSTMENTS OF PERIOD - ------------------------------ ----------- ------------------ ----------------- ------------- ----------- 1993 Land improvements........... $ 260 $ 101 $ 21 $ (11) $ 329 Buildings................... 6,301 713 353 (108) 6,553 Plant, laboratory and office equipment..................... 23,228 4,381 5,627 (288) 21,694 ----------- -------- -------- ------------- ----------- 29,789 5,195 6,001 (407) 28,576 Rental machines............. 1,402 583 561 (17) 1,407 ----------- -------- -------- ------------- ----------- Total.............. $ 31,191 $ 5,778(A) $ 6,562 $ (424) $ 29,983 ----------- -------- -------- ------------- ----------- ----------- -------- -------- ------------- ----------- 1992 Land improvements........... $ 289 $ 23 $ 38 $ (14) $ 260 Buildings................... 4,848 1,837 157 (227) 6,301 Plant, laboratory and office equipment..................... 21,480 6,819 4,322 (749) 23,228 ----------- -------- -------- ------------- ----------- 26,617 8,679 4,517 (990) 29,789 Rental machines............. 1,483 542 573 (50) 1,402 ----------- -------- -------- ------------- ----------- Total.............. $ 28,100 $ 9,221(B) $ 5,090 $ (1,040) $ 31,191 ----------- -------- -------- ------------- ----------- ----------- -------- -------- ------------- ----------- 1991 Land improvements........... $ 272 $ 25 $ 8 $ -- $ 289 Buildings................... 4,474 524 151 1 4,848 Plant, laboratory and office equipment..................... 20,170 4,146 2,848 12 21,480 ----------- -------- -------- ------------- ----------- 24,916 4,695 3,007 13 26,617 Rental machines............. 1,502 454 481 8 1,483 ----------- -------- -------- ------------- ----------- Total.............. $ 26,418 $ 5,149(C) $ 3,488 $ 21 $ 28,100 ----------- -------- -------- ------------- ----------- ----------- -------- -------- ------------- -----------
- ------------ (A) Includes charge for accelerated depreciation due to restructuring actions taken in 1993 of $1,068 million. (B) Includes charge for accelerated depreciation due to restructuring actions taken in 1992 of $4,185 million. (C) Includes charge for accelerated depreciation due to restructuring action taken in 1991 of $378 million. S-2 SCHEDULE VIII INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES VALUATION AND QUALIFYING ACCOUNTS FOR THE YEAR ENDED DECEMBER 31: (DOLLARS IN MILLIONS)
BALANCE AT BALANCE AT BEGINNING END DESCRIPTION OF PERIOD NET CHANGE(A) OF PERIOD - ---------------------------------------------------------------------- ------------- ----------------- ------------- 1993 ]Account deducted from assets: Allowance for doubtful accounts --Current........................................................ $ 578 $ 105 $ 683 ------ ------ ------ ------ ------ ------ --Non-current.................................................... $ 209 $ (22) $ 187 ------ ------ ------ ------ ------ ------ 1992 Account deducted from assets: Allowance for doubtful accounts --Current........................................................ $ 414 $ 164 $ 578 ------ ------ ------ ------ ------ ------ --Non-current.................................................... $ 196 $ 13 $ 209 ------ ------ ------ ------ ------ ------ 1991 Account deducted from assets: Allowance for doubtful accounts --Current........................................................ $ 389 $ 25 $ 414 ------ ------ ------ ------ ------ ------ --Non-current.................................................... $ 119 $ 77 $ 196 ------ ------ ------ ------ ------ ------
- ------------ (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 1993, approximate less than three and one-half percent of the company's current receivables and less than two percent of the company's non-current receivables. The allowances for the year ended 1992, approproximate less than three percent of the company's current receivables and less than two percent of the company's non-current receivables. The allowances for the year ended 1991, approximate less than two percent in both categories of receivables. S-3 SCHEDULE IX INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES SHORT-TERM BORROWINGS FOR THE YEAR ENDED DECEMBER 31: (DOLLARS IN MILLIONS)
WEIGHTED WEIGHTED AVERAGE MAXIMUM AVERAGE BALANCE AT INTEREST OUTSTANDING INTEREST RATE END RATE AT DURING THE AVERAGE DURING THE OF PERIOD YEAR END YEAR BALANCE PERIOD ----------- ------------- ------------- ----------- ------------- 1993 Commercial Paper................................... $ 3,735 3.9% $ 8,357 $ 6,295 3.6% Short-Term Loans................................... 4,356 5.9% 6,815 5,652 7.4% 1992 Commercial Paper................................... 7,869 3.5% 7,869 5,325 3.9% Short-Term Loans................................... 5,342 13.3% 6,793 5,767 16.2% 1991 Commercial Paper................................... 3,426 5.1% 3,426 2,485 6.3% Short-Term Loans................................... 5,927 18.6% 7,955 5,316 22.5%
- ------------ Note-- The balance at end of period excludes the current portion of long-term debt of $4,006 million, $3,256 million, and $4,363 million for the years 1993, 1992, and 1991, respectively. Effective 1993, short-term loan amounts in subsidiaries where the economic environment is highly inflationary, were primarily denominated in U.S. dollars. In prior years, these loans were denominated in local currencies, and the high interest rates in those operations were largely offset by the effects of inflation on funds borrowed. If the inflationary effects of these loans were excluded, the weighted average interest rate at year-end would have been 7.5% and 8.7% for the years 1992 and 1991, respectively, and the weighted average interest rate during the year would have been 7.8% and 9.0% for 1992 and 1991, respectively. The average amount outstanding during the year and the weighted average interest rate during the year were calculated by averaging the quarterly balances and rates. S-4 SCHEDULE X INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES SUPPLEMENTARY INCOME STATEMENT INFORMATION FOR THE YEAR ENDED DECEMBER 31: (DOLLARS IN MILLIONS)
ITEM 1993 1992 1991 - ---------------------------------------------------------------- --------- --------- --------- Maintenance and repairs(A)...................................... $ 1,871 $ 2,260 $ 2,376 --------- --------- --------- --------- --------- --------- Taxes, other than payroll and income taxes(A)................... $ 702 $ 800 $ 795 --------- --------- --------- --------- --------- ---------
- ------------ (A) Includes amounts charged to all accounts, including inventories and fixed assets. S-5 EXHIBIT INDEX
REFERENCE NUMBER EXHIBIT PER ITEM 601 OF NUMBER IN REGULATION S-K DESCRIPTION OF EXHIBITS THIS FORM 10-K - --------------------- -------------------------------------------------------------------------- ----------------- (3) Certificate of Incorporation and By-laws. The Certificate of Incorporation of IBM as restated April 27, 1992, and VI filed May 27, 1992, as amended through May 28, 1993. The By-laws of IBM as amended through November 30, 1993. V (4) Instruments defining the rights of security holders. The instruments defining the rights of the holders of the 6 3/8% Notes due 1997 and the 7 1/4% Notes due 2002 are Exhibits 4(a) through 4(1) to Registration Statement No. 33-33590 on Form S-3, filed February 22, 1990, and are hereby incorporated by reference. The instruments defining the rights of the holders of the 9% Notes due 1998 are Exhibit 4 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1985, and Exhibit 4(b) to Registration Statement No. 33-6889 on Form S-3 filed on July 1, 1986, and are hereby incorporated by reference. The instruments defining the rights of the holders of the 6 3/8% Notes due 2000 and the 7 1/2% Debentures due 2013 are Exhibits 4(a) through 4(1) to Registration Statement No. 33-49475(1) on Form S-3, file May 24, 1993, and are hereby incorporated by reference. The instruments defining the rights of the holders of the 8 3/8% Debentures due 2019 are Exhibits (4)(a)(b)(c) and (d) to Registration Statement No. 33-31732 on Form S-3, filed on October 24, 1989, are hereby incorporated by reference. (9) Voting trust agreement. Not applicable (10) Material contracts. A copy of the IBM 1989 Long-Term Performance Plan is contained in Registration Statement No. 33-29022 on Form S-8, filed on May 31, 1989, and is hereby incorporated by reference. Board of Directors compensatory plans, as described under Director's Compensation on page 7 of IBM's definitive Proxy Statement dated March 14, 1994, which is incorporated herein by reference. (11) Statement re computation of per share earnings. I (12) Statement re computation of ratios. Not applicable (13) Annual report to security holders. VII (18) Letter re change in accounting principles. Not applicable (19) Previously unfiled documents. Not applicable (21) Subsidiaries of the registrant. II (22) Published report regarding matters submitted to vote of security holders. Not applicable (23) Consents of experts and counsel. III (24) Powers of attorney. VIII (27) Financial Data Schedules IX (28) Information from reports furnished to state insurance regulatory Not applicable authorities. (29) Additional exhibits. IV
EX-3.(I) 2 CERTIFICATE OF INCORPORATION of INTERNATIONAL BUSINESS MACHINES CORPORATION Restated April 27, 1992 Filed May 27, 1992 As Amended through May 28, 1993 TABLE OF CONTENTS Page Article One Name......................... 1 Article Two Purposes & Powers............ 1 Article Three Capital....................... 1 Article Four Shares....................... 1 Article Five Office....................... 9 Article Six Directors.................... 9 Article Seven Committees, Account Books, 10 Dividends, Qualification of Directors, Payment of Directors Article Eight Contracts, Ratification...... 10 Article Nine Agent for Service............ 11 Article Ten Preemptive Rights............ 11 Article Eleven Liability of Directors....... 11 Certificate of Incorporation of INTERNATIONAL BUSINESS MACHINES CORPORATION ONE: The name of the corporation (hereinafter called "the Corporation") is International Business Machines Corporation. TWO: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized and to exercise powers granted under the Business Corporation Law of the State of New York, provided that the Corporation shall not engage in any act or activity requiring the consent or approval of any state official, department, board, agency, or other body without such consent or approval first being obtained. THREE: The aggregate number of shares that the Corporation shall have authority to issue is 900,000,000 shares, consisting of 750,000,000 shares of the par value of $1.25 per share, which shall be designated "capital stock" and 150,000,000 shares of the par value of $.01 per share, which shall be designated "preferred stock." FOUR: (1) Subject to the provisions of the By-laws, as from time to time amended, with respect to the closing of the transfer books and the fixing of a record date, each share of the capital stock of the Corporation shall be entitled to one vote on all matters requiring a vote of the stockholders and, subject to the rights of the holders of any outstanding shares of preferred stock issued under this Article FOUR, shall be entitled to receive such dividends, in cash, securities, or property, as may from time to time be declared by the Board of Directors. In the event of any liquidation, dissolution, or winding up of the Corporation, either voluntary or involuntary, after payment shall have been made to the holders of preferred stock of the full amount to which they shall be entitled under this Article FOUR, the holders of capital stock shall be entitled, to the exclusion of the holders of the preferred stock of any series, to share ratably, according to the number of shares held by them, in all remaining assets of the Corporation available for distribution. (2) The Board of Directors is authorized, at any time or from time to time, to issue preferred stock and (i) to divide the shares of preferred stock into series; (ii) to determine the designation for any such series by number, letter, or title that shall distinguish such series from any other series of preferred stock; (iii) to determine the number of shares in any such series (including a determination that such series shall consist of a single share); and (iv) to determine with respect to the shares of any series of preferred stock: (a) whether the holders thereof shall be entitled to cumulative, noncumulative, or partially cumulative dividends and, with respect to shares entitled to dividends, the dividend rate or rates, including without limitation the methods and procedures for determining such rate or rates, and any other terms and conditions relating to such dividends; 1. (b) whether, and if so to what extent and upon what terms and conditions, the holders thereof shall be entitled to rights upon the liquidation of, or upon any distribution of the assets of, the Corporation; (c) whether, and if so upon what terms and conditions, such shares shall be convertible into, or exchangeable for, other securities or property; (d) whether, and if so upon what terms and conditions, such shares shall be redeemable; (e) whether the shares shall be subject to any sinking fund provided for the purchase or redemption of such shares and, if so, the terms of such fund; (f) whether the holders thereof shall be entitled to voting rights and, if so, the terms and conditions for the exercise thereof, provided that the holders of shares of preferred stock (i) will not be entitled to more than the lesser of (x) one vote per $100 of liquidation value or (y) one vote per share, when voting as a class with the holders of shares of capital stock, and (ii) will not be entitled to vote on any matter separately as a class, except, to the extent specified with respect to each series, (x) with respect to any amendment or alteration of the provisions of this Certificate of Incorporation that would adversely affect the powers, preferences, or special rights of the applicable series of preferred stock or (y) in the event the Corporation fails to pay dividends on any series of preferred stock in full for any six quarterly dividend payment periods, whether or not consecutive, in which event the number of directors may be increased by two and the holders of outstanding shares of preferred stock then similarly entitled shall be entitled to elect the two additional directors until full accumulated dividends on all such shares of preferred stock shall have been paid; and (g) whether the holders thereof shall be entitled to other preferences or rights and, if so, the qualifications, limitations, or restrictions of such preferences or rights. (3) Provisions relating to the Series A 7-1/2% Preferred Stock. (a) Designation, Number, and Liquidation Preference. A series of ----------------------------------------------- preferred stock is hereby designated "Series A 7-1/2% Preferred Stock". The number of Shares constituting the Series A 7-1/2% Preferred Stock is 12,000,000. Shares of the Series A 7-1/2% Preferred Stock shall have a par value of $.01 and a liquidation preference of $100 per share. The number of authorized shares of the Series A 7-1/2% Preferred Stock may be increased or decreased, in the discretion of the Board of Directors, by amending this paragraph. (b) Dividend Rate. ------------- (i) Shares of the Series A 7-1/2% Preferred Stock shall be entitled to receive dividends at a fixed annual rate of $7.50 per share. Such 2. dividends shall be cumulative from the date of original issue of such shares and shall be payable, when and as declared by the Board of Directors, quarterly for each of the quarters ending March, June, September and December of each year, in arrears on the first business day of each April, July, October and January, commencing July 1, 1993. Each such dividend shall be paid to the holders of record of shares of the Series A 7-1/2% Preferred Stock as they appear on the stock register on the applicable record date, which shall be the 15th day prior to the payment date thereof. Dividends on account of arrears for any past dividend periods may be declared and paid at any time, without reference to any regular dividend payment date, to holders of record on such date as may be fixed by the Board of Directors which shall not exceed 30 days preceding such dividend payment date thereof. (ii) No dividends shall be declared or paid or set apart for payment on any shares of any class or classes of stock of the Corporation or any series thereof ranking, as to dividends, on a parity with or junior to the Series A 7-1/2% Preferred Stock for any period unless full cumulative dividends have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof set apart for such payment, on the Series A 7-1/2% Preferred Stock for all dividend payment periods terminating on or prior to the date of payment of such full cumulative dividends. When dividends are not paid in full, as aforesaid, upon the shares of the Series A 7-1/2% Preferred Stock and any other shares of any class or classes of stock or series thereof ranking on a parity as to dividends with the Series A 7-1/2% Preferred Stock, all dividends declared upon shares of the Series A 7-1/2% Preferred Stock and any other shares of such class or classes or series thereof ranking on a parity as to dividends with the Series A 7-1/2% Preferred Stock shall be declared pro rata so that the amount of dividends declared per share on the Series A 7-1/2% Preferred Stock and such other shares shall in all cases bear to each other the same ratio that accrued dividends per share on the shares of the Series A 7-1/2% Preferred Stock and such other shares bear to each other. Holders of shares of the Series A 7-1/2% Preferred Stock shall not be entitled to any dividend, whether payable in cash, property or stock, in excess of full cumulative dividends, as herein provided, on the Series A 7-1/2% Preferred Stock. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Series A 7-1/2% Preferred Stock which may be in arrears. (iii) So long as any shares of the Series A 7-1/2% Preferred Stock are outstanding, no dividend (other than a dividend in capital stock or in any other shares ranking junior to the Series A 7-1/2% Preferred Stock as to dividends and upon Liquidation (as defined in subsection (f)(i) and other than as provided in paragraph (ii) of this subsection (b)) shall be declared or paid or set aside for payment or other distribution declared or made upon the shares of capital stock or upon any other shares ranking junior to or on a parity with the Series A 7-1/2% Preferred Stock as to dividends or upon Liquidation, nor shall any of the shares of capital stock or any other shares of the Corporation ranking junior to or on a parity with the Series A 7-1/2% Preferred Stock as to dividends or upon 3. Liquidation be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any such shares) by the Corporation (except by conversion into or exchange for shares of the Corporation ranking junior to the Series A 7-1/2% Preferred Stock as to dividends and upon Liquidation) unless, in each case, the full cumulative dividends on all outstanding shares of the Series A 7-1/2% Preferred Stock shall have been or contemporaneously are declared and paid, or declared and a sum sufficient for payment thereof is set apart for payment, for all past dividend payment periods. (iv) Dividends payable on the Series A 7-1/2% Preferred Stock for any period less than a full quarterly dividend period, and for the dividend period beginning on the date of issuance of the shares of the Series A 7-1/2% Preferred Stock, shall be computed on the basis of a 360-day year consisting of 12 30-day months. The amount of dividends payable on shares of the Series A 7-1/2% Preferred Stock for each full quarterly dividend period shall be computed by dividing by 4 the annual rate per share set forth above in subsection (b)(i). (c) Redemption. ---------- (i) The shares of the Series A 7-1/2% Preferred Stock shall not be redeemable prior to July 1, 2001. On and after July 1, 2001, the Corporation, at its option, may redeem shares of the Series A 7-1/2% Preferred Stock, as a whole or in part, at any time or from time to time, at a redemption price per share of $100 plus, in each case, accrued and unpaid dividends thereon to the date fixed for redemption. (ii) In the event that fewer than all the outstanding shares of the Series A 7-1/2% Preferred Stock are to be redeemed, the number of shares to be redeemed shall be determined by the Board of Directors and the shares to be redeemed shall be determined by lot or pro rata as may be determined by the Board of Directors or by any other method as may be determined by the Board of Directors in its sole discretion to be equitable. (iii) In the event the Corporation shall redeem shares of the Series A 7-1/2% Preferred Stock, notice of such redemption shall be given by first class mail, postage prepaid, mailed not less than 35 nor more than 60 days prior to the redemption date, to each holder of record of the shares to be redeemed, at such holder's address as the same appears on the stock register of the Depositary (as provided in subsection (j)(iii) below). Each such mailed notice shall state: (v) the redemption date; (w) the number of shares of the Series A 7-1/2% Preferred Stock to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (x) the redemption price; (y) the place or places where certificates for such shares are to be surrendered for payment of the redemption price; and (z) that dividends on the shares to be redeemed will cease to accrue on such redemption date. No defect in the notice of redemption or in the mailing thereof shall affect the validity of the redemption proceedings, and the failure to give notice 4. to any holder of shares of the Series A 7-1/2% Preferred Stock to be so redeemed shall not affect the validity of the notice given to the other holders of shares of the Series A 7-1/2% Preferred Stock to be so redeemed. (iv) Notice having been mailed as aforesaid, then, notwithstanding that the certificates evidencing the shares of the Series A 7-1/2% Preferred Stock shall not have been surrendered, from and after the redemption date (unless default shall be made by the Corporation in providing money for the payment of the redemption price) dividends on the shares of the Series A 7-1/2% Preferred Stock so called for redemption shall cease to accrue, and said shares shall no longer be deemed to be outstanding, and all rights of the holders thereof as stockholders (including dividend and voting rights) of the Corporation (except the right to receive from the Corporation the redemption price) shall cease. Upon surrender in accordance with said notice of the certificates for any shares so redeemed (properly endorsed or assigned for transfer, if the Board of Directors shall so require and the notice shall so state), such shares shall be redeemed by the Corporation at the redemption price aforesaid. In case fewer than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without cost to the holder thereof. (v) Any shares of the Series A 7-1/2% Preferred Stock which shall at any time have been redeemed shall, after such redemption, have the status of authorized but unissued shares of preferred stock, without designation as to series until such shares are once more designated as part of a particular series by the Board of Directors. (vi) Notwithstanding the foregoing provisions of this subsection (c), if any dividends on the Series A 7-1/2% Preferred Stock are in arrears, no shares of the Series A 7-1/2% Preferred Stock shall be redeemed unless all outstanding shares of the Series A 7-1/2% Preferred Stock are simultaneously redeemed, and the Corporation shall not purchase or otherwise acquire any shares of the Series A 7-1/2% Preferred Stock; provided, however, that the foregoing shall not prevent the purchase or acquisition of shares of the Series A 7-1/2% Preferred Stock pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of the Series A 7-1/2% Preferred Stock. (d) Conversion. The holders of shares of the Series A 7-1/2% Preferred ---------- Stock shall not have any rights herein to convert such shares into or exchange such shares for shares of any other class or classes or of any other series of any class or classes of stock of the Corporation. (e) Voting. The shares of the Series A 7-1/2% Preferred Stock shall not ------ have any voting powers either general or special, except as required by law and except that: (i) So long as any of the shares of the Series A 7-1/2% Preferred Stock are outstanding, the consent of the holders of at least two-thirds of all the shares of the Series A 7-1/2% Preferred Stock at the time outstanding, 5. given in person or by proxy, either in writing or by a vote at a meeting called for the purpose at which the holders of shares of the Series A 7-1/2% Preferred Stock shall vote together as a separate class, shall be necessary for authorizing, effecting or validating the amendment, alteration or repeal of any of the provisions of the Certificate of Incorporation or of any certificate amendatory thereof or supplemental thereto (including any certificate of amendment or any similar document relating to any series of preferred stock) which would adversely affect the powers, preferences or special rights of the Series A 7-1/2% Preferred Stock, including the creation or authorization of any class of stock that ranks senior to the Preferred Stock with respect to dividends or upon Liquidation. Any amendment or any resolution or action of the Board of Directors which would create or issue any series of preferred stock out of the authorized shares of preferred stock, or which would authorize, create or issue any shares or class of stock (whether or not already authorized), ranking junior to or on a parity with the Series A 7-1/2% Preferred Stock with respect to the payment of dividends and distributions and distributions upon any Liquidation, shall not be considered to affect adversely the powers, preferences or special rights of the outstanding shares of the Series A 7-1/2% Preferred Stock; (ii) In the event that the Corporation shall have failed to declare and pay or set apart for payment in full the dividends accumulated on the outstanding shares of the Series A 7-1/2% Preferred Stock for any six quarterly dividend payment periods, whether or not consecutive, and all such preferred dividends remain unpaid (a "Preferred Dividend Default"), the number of directors of the Corporation shall be increased by two and the holders of outstanding shares of the Series A 7-1/2% Preferred Stock, voting together as a class with all other series of preferred stock then entitled to vote on the election of such directors, shall be entitled to elect such two additional directors until the full dividends accumulated on all outstanding shares of the Series A 7-1/2% Preferred Stock have been declared and paid in full. Upon the occurrence of a Preferred Dividend Default, the Board of Directors shall within 10 business days (any day other than a day which is a Saturday, Sunday or legal holiday on which banks are open for business in New York, New York) of such default call a special meeting of the holders of shares of the Series A 7-1/2% Preferred Stock and all other holders of a series of preferred stock who are then entitled to participate in the election of such directors for the purpose of electing the additional directors provided by the foregoing provisions; provided that, in lieu of holding such meeting, the holders of record of a majority of the outstanding shares of the Series A 7-1/2% Preferred Stock and all other series of preferred stock who are then entitled to participate in the election of such directors may, by action taken by written consent as permitted by law and this Certificate of Incorporation and the By-laws of the Corporation, elect such additional directors. If and when all accumulated dividends on the shares of the Series A 7-1/2% Preferred Stock have been declared and paid or set aside for payment in full, the holders of shares of the Series A 7-1/2% Preferred Stock shall be divested of the special voting rights provided by this paragraph, subject to revesting in the event of each and every subsequent Preferred Dividend 6. Default. Upon termination of such special voting rights attributable to all holders of shares of the Series A 7-1/2% Preferred Stock and any other series of preferred stock, the term of office of each director elected by the holders of shares of the Series A 7-1/2% Preferred Stock and such parity stock (hereinafter referred to as a "Preferred Stock Director") pursuant to such special voting rights shall forthwith terminate and the number of directors of the Company shall, without further action, be reduced by two, subject always to the increase in the number of directors pursuant to the foregoing provisions in case of a future Preferred Dividend Default. Any Preferred Stock Director may be removed at any time with or without cause by, and shall not be removed otherwise than by, the vote of the holders of record of a majority of the outstanding shares of the Series A 7-1/2% Preferred Stock and all other series of preferred stock who were entitled to participate in such Preferred Stock Director's election, voting as a separate class, at a meeting called for such purpose or by written consent as permitted by law and this Certificate of Incorporation and the By-laws of the Corporation. So long as a Preferred Dividend Default shall continue, any vacancy in the office of a Preferred Stock Director may be filled by written consent of the Preferred Stock Director remaining in office or, if none remains in office, by vote of the holders of record of a majority of the outstanding shares of the Series A 7-1/2% Preferred Stock and all other series of preferred stock who are then entitled to participate in the election of such Preferred Stock Directors as provided above. As long as a Preferred Dividend Default shall continue, holders of shares of the Series A 7-1/2% Preferred Stock shall not, as such stockholders, be entitled to vote on the election or removal of directors other than Preferred Stock Directors, but shall not be divested of any other voting rights provided to such stockholders by law with respect to any other matter to be acted upon by the stockholders of the Corporation. The Preferred Stock Directors shall each be entitled to one vote per director on any matter. (f) Liquidation Rights. ------------------ (i) Upon the dissolution, liquidation or winding up of the affairs of the Corporation, whether voluntary or involuntary (collectively, a "Liquidation"), after payment or provision for payment has been made of the debts and other liabilities of the Corporation and payment or provision for payment has been made on all amounts required to be paid in respect of all outstanding shares of any class or classes of stock of the Corporation or series thereof ranking senior to the shares of the Series A 7-1/2% Preferred Stock, the holders of the shares of the Series A 7-1/2% Preferred Stock shall be entitled, subject to paragraph (iv) of this subsection (f), to receive out of the assets of the Corporation, before any payment or distribution shall be made on capital stock or on any other class of stock ranking junior to preferred stock upon Liquidation, the amount of $100 per share, plus a sum equal to all dividends (whether or not earned or declared) on such shares accrued and unpaid thereon to the date of final distribution. 7. (ii) Neither the sale, transfer or lease of all or any part of the property or business of the Corporation, nor the merger or consolidation of the Corporation into or with any other corporation or the merger or consolidation of any other corporation into or with the Corporation, shall be deemed to be a Liquidation for the purposes of this subsection (f). (iii) After the payment to the holders of the shares of the Series A 7-1/2% Preferred Stock of the full preferential amounts provided for in this subsection (f), the holders of the Series A 7-1/2% Preferred Stock as such shall have no right or claim to any of the remaining assets of the Corporation and the shares of the Series A 7-1/2% Preferred Stock shall no longer be deemed to be outstanding or be entitled to any other powers, preferences, rights or privileges, including voting rights, and such shares shall be surrendered for cancellation to the Corporation. (iv) In the event the assets of the Corporation available for distribution to the holders of shares of the Series A 7-1/2% Preferred Stock upon any Liquidation shall be insufficient to pay in full all amounts to which such holders are entitled pursuant to paragraph (i) of this subsection (f), no such distribution shall be made on account of any shares of any series of preferred stock ranking on a parity with the shares of the Series A 7-1/2% Preferred Stock upon such Liquidation unless proportionate distributive amounts shall be paid on account of the shares of the Series A 7-1/2% Preferred Stock, ratably, in proportion to the full distributable amounts for which holders of all such parity shares are respectively entitled upon such Liquidation. (g) Priority. Any shares of any class or classes of the Corporation or -------- series thereof shall be deemed to rank: (i) prior to the shares of the Series A 7-1/2% Preferred Stock, either as to dividends or upon Liquidation, if the holders of such class or classes shall be entitled to the receipt of dividends or of amounts distributable upon Liquidation of the Corporation, in preference or priority to the holder of shares of the Series A 7-1/2% Preferred Stock; (ii) on a parity with shares of the Series A 7-1/2% Preferred Stock, either as to dividends or upon Liquidation, whether or not the dividend rates, dividend payment dates or redemption or Liquidation prices per share or sinking fund provisions, if any, be different from those of the Series A 7-1/2% Preferred Stock, if the holders of such shares shall be entitled to the receipt of dividends or of amounts distributable upon Liquidation of the Corporation, in proportion to their respective dividend rates or Liquidation prices, without preference or priority, one over the other, as between the holders of such shares and the holders of shares of the Series A 7-1/2% Preferred Stock; and (iii) junior to shares of the Series A 7-1/2% Preferred Stock, either as to dividends or upon Liquidation, if such class is capital stock or if the holders of shares of the Series A 7-1/2% Preferred Stock shall be entitled to receipt of dividends or of amounts distributable upon Liquidation of the 8. Corporation, in preference or priority to the holders of shares of such class or classes. (h) Sinking or Retirement Fund. The shares of the Series A 7-1/2% -------------------------- Preferred Stock shall not be entitled to the benefit of a sinking or retirement fund to be applied to the purchase or redemption of such shares. (i) Distribution to Capital Stock Holders. Distribution of any of the ------------------------------------- Series A 7-1/2% Preferred Stock or any other series of preferred stock may, in the discretion of the Board of Directors, be made to the holders of shares of capital stock. (j) Miscellaneous. ------------- (i) Subject to paragraph (iii) of subsection (c) above, all notices referred to herein shall be in writing, and all notices hereunder shall be deemed to have been given upon the earlier of receipt thereof or three business days after the mailing thereof if sent by registered mail (unless first-class mail shall be specifically permitted for such notice under the terms of this Certificate of Incorporation) with postage prepaid, addressed: if to the Corporation, to its offices at Old Orchard Road, Armonk, New York 10504 (Attention: Secretary), if to the Depositary (as defined in paragraph (iii) below), to such holder at the address of such holder as listed in the stock book (which may include the records of the Depositary if appropriate); or to such other address as the Corporation or holder, as the case may be, shall have designated by notice similarly given. (ii) In the event a holder of shares of the Series A 7-1/2% Preferred Stock shall not by written notice designate the name to whom payment upon redemption of any shares of the Series A 7-1/2% Preferred Stock should be made or the address to which the certificate or certificates representing such shares, or such payment, should be sent, the Corporation shall be entitled to register such shares, and make such payment, in the name of the holder of such shares as shown on the records of the Corporation and to send the certificate or certificates representing such shares, or such payment, to the address of such holder shown on the records of the Corporation. (iii) First Chicago Trust Company of New York shall be appointed the depositary (the "Depositary") for the shares of the Series A 7-1/2% Preferred Stock. The Depositary shall act as transfer agent, registrar and dividend disbursing agent for the shares of the Series A 7-1/2% Preferred Stock. FIVE: The town and county within the State of New York in which the office of the Corporation is to be located is the Town of North Castle, County of Westchester. SIX: The number of directors of the Corporation shall be provided in its By-laws, but not less than 9 nor more than 25. 9. SEVEN: The Board of Directors may designate from their number an executive committee and one or more other committees, each of which shall consist of three or more directors. All such committees, in the intervals between meetings of the Board of Directors and to the extent provided in the By- laws or the resolution of the Board of Directors establishing such a committee, shall have all the authority and may exercise all the powers of the Board of Directors in the management of the business and affairs of the Corporation to the extent lawful under the Business Corporation Law of the State of New York. The Board of Directors shall from time to time decide whether and to what extent and at what times and under what conditions and requirements the accounts and books of the Corporation, or any of them, except the stock book, shall be open to the inspection of the stockholders, and no stockholder shall have any right to inspect any books or documents of the Corporation except as conferred by statute of the State of New York or authorized by the Board of Directors. The Board of Directors may from time to time fix, determine, and vary the amount of the working capital of the Corporation; may determine what part, if any, of surplus shall be declared in dividends and paid to the stockholders; may determine the time or times for the declaration and payment of dividends, the amount thereof, and whether they are to be in cash, securities, or properties; may direct and determine the use and disposition of any surplus or net profits over and above the capital, and in its discretion may use or apply any such surplus or accumulated profits in the purchase or acquisition of bonds or other pecuniary obligations of the Corporation to such extent, and in such manner and upon such terms as the Board of Directors may deem expedient. Directors shall be stockholders, subject to the power of the Board of Directors from time to time to prescribe a reasonable time after qualification within which newly elected directors must become stockholders. Each director, in consideration of serving as such, shall be entitled to receive from the Corporation such amount per annum or such fees for attendance at meetings of the stockholders or of the Board of Directors or of committees of the Board of Directors, or both, as the Board of Directors shall from time to time determine, together with reimbursement for the reasonable expenses incurred in connection with the performance of duties. Nothing herein contained shall preclude any director from serving the Corporation or its subsidiaries in any other capacity and receiving compensation therefor. EIGHT: In the absence of fraud, any director of the Corporation individually, or any firm or association of which any director is a member, or any corporation of which any director is an officer, director, stockholder, or employee, or in which such director is pecuniarily or otherwise interested, may be a party to, or may be pecuniarily or otherwise interested in, any contract, transaction, or act of the Corporation, and 10. (1) Such contract, transaction, or act shall not be in any way invalidated or otherwise affected by that fact, (2) Any such director of the Corporation may be counted in determining the existence of a quorum at any meeting of the Board of Directors or of any committee thereof that shall authorize any such contract, transaction, or act, but may not vote thereon, and (3) No director of the Corporation shall be liable to account to the Corporation for any profit realized by such director from or through any such contract, transaction, or act; provided, however, that if any such director of the Corporation is so interested either individually or as a member of a firm or association, or as the holder of a majority of the stock of any class of a corporation, the contract, transaction, or act shall be duly authorized or ratified by a majority of the Board of Directors who are not so interested and who know of such director's interest therein. To the extent permitted by law, any contract, transaction, or act of the Corporation or of the Board of Directors or of any committee thereof that shall be ratified, whether before or after judgment rendered in a suit with respect to such contract, transaction, or act, by the holders of a majority of the stock of the Corporation having voting power at any annual meeting or at any special meeting called for such purpose, shall be as valid and as binding as though ratified by every stockholder of the Corporation and shall constitute a complete bar to any such suit or to any claim of execution in respect of any such judgment; provided, however, that any failure of the stockholders to approve or ratify such contract, transaction, or act, when and if submitted, shall not be deemed in any way to invalidate the same or to deprive the Corporation, its directors, officers, or employees of its or their right to proceed with such contract, transaction, or act. NINE: The Secretary of State of the State of New York is designated as the agent of the Corporation upon whom process in any action or proceeding against it may be served, and the address within the State to which the Secretary of State shall mail a copy of process in any action or proceeding against the Corporation that may be served upon the Secretary of State is Armonk, New York 10504. TEN: The holders of shares of the Corporation shall have no preemptive or preferential right to subscribe for or purchase any shares of the Corporation or any rights or options to purchase shares of the Corporation or any shares or other securities convertible into or carrying rights or options to purchase shares of the Corporation. ELEVEN: Pursuant to Section 402(b) of the Business Corporation Law of the State of New York, the liability of the Corporation's directors to the Corporation or its stockholders for damages for breach of duty as a director shall be eliminated to the fullest extent permitted by the 11. Business Corporation Law of the State of New York, as it exists on the date hereof or as it may hereafter be amended. No amendment to or repeal of this Article shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. _______________________________________ This Restated Certificate of Incorporation was approved by the Board of Directors of the Corporation and on April 27, 1992 by the stockholders and, pursuant to their authority, was executed on May 19, 1992 by Robert Ripp and John E. Hickey, and was filed with the Department of State of the State of New York on May 27, 1992. INTERNATIONAL BUSINESS MACHINES CORPORATION I, John E. Hickey, Secretary of International Business Machines Corporation, do hereby certify that the foregoing is a true and complete copy of the Restated Certificate of Incorporation of said Corporation as amended through May 28, 1993, and it remains in full force and effect on this date. IN WITNESS WHEREOF, I have signed my name and affixed the seal of International Business Machines Corporation this 28th day of March, 1994. J.E. HICKEY ----------------- Secretary 12. EX-3.(II) 3 BY-LAWS of INTERNATIONAL BUSINESS MACHINES CORPORATION Adopted April 29, 1958 As Amended Through November 30, 1993 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................ 7 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.............. 8 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 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 VII OFFICES SEC. 1. Principal Office......... 17 SEC. 2. Other Offices............ 17 ARTICLE IX Waiver of Notice..................... 18 ARTICLE X Fiscal Year.......................... 18 ARTICLE XI Seal................................. 18 ARTICLE XII Amendments........................... 18 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', 'Controller', 'Assistant Treasurer', 'Assistant Secretary', or 'Assistant 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 Monday of April of each year, if not a legal holiday, or, if such Monday shall be a legal holiday, then on the next succeeding day not a legal holiday. If any annual meeting shall not be held on the day designated herein, or if the directors to be elected at such annual meeting -1- 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 or an Assistant 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. -2- 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 (who shall be an Assistant Secretary, if any of them shall be present) 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 -3- (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. -4- ARTICLE III BOARD OF DIRECTORS SECTION 1. General Powers. The business and affairs of the Corporation shall be managed by the Board. The Board may exercise all such authority and powers of the Corporation and do all such lawful acts and things as are not by law, the Certificate of Incorporation or these By-laws, directed or required to be exercised or done by the stockholders. SECTION 2. Number; Qualifications; Election; Term of Office. The number of directors of the Corporation shall be fourteen, but the number thereof may be increased to not more than twenty-five, or decreased to not less than nine, by amendment of these By-laws. The directors shall be elected at the annual meeting of the stockholders. At each meeting of the stockholders for the election of directors at which a quorum is present, the persons receiving a plurality of the votes at such election shall be elected. Each director shall hold office until the annual meeting of the stockholders which shall be held next after the election of such director and until a successor shall have been duly elected and qualified, or until death, or until the director shall have resigned as hereinafter provided in Section 10 of this Article III. SECTION 3. Place of Meetings. Meetings of the Board shall be held at such place either within or outside State of New York as may from time to time be fixed by the Board or specified or fixed in the notice of any such meeting. SECTION 4. First Meeting. The Board shall meet for the purpose of organization, the election of officers and the transaction of other business, on the same day the annual meeting of stockholders is held. Notice of such meeting need not be given. Such meeting may be held at any other time or place which shall be specified in a notice thereof given as hereinafter provided in Section 7 of this Article III. SECTION 5. Regular Meetings. Regular meetings of the Board shall be held at times and dates fixed by the Board or at such other times and dates as the Chairman of the Board shall determine and as shall be specified in the notice of such meetings. Notice of regular meetings of the Board need not be given except as otherwise required by law or these By-laws. SECTION 6. Special Meetings. Special meetings of the Board may be called by the Chairman of the Board. SECTION 7. Notice of Meetings. Notice of each special meeting of the Board (and of each regular meeting for which notice shall be required) shall be given by the Secretary as hereinafter provided in this Section 7, in which notice shall be stated the time, place and, if required by law or these By-laws, the purposes of such meeting. Notice of each such meeting shall be mailed, postage prepaid, to each director, by first-class mail, at least four days before the day on which such meeting is to be held, or shall be sent by facsimile transmission or comparable medium, or be delivered personally or by telephone, at least twenty-four hours before the -5- 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 (who shall be an Assistant Secretary, if any of them shall be present at such meeting) 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, -6- provided, however, that such retirement shall not cut short the annual term for which any director shall have been elected by the stockholders. ARTICLE IV EXECUTIVE AND OTHER COMMITTEES SECTION 1. Executive Committee. The Board, by resolution adopted by a majority of the Board, may designate not less than four of the directors then in office to constitute an Executive Committee, each member of which unless otherwise determined by resolution adopted by a majority of the whole Board, shall continue to be a member of such Committee until the annual meeting of the stockholders which shall be held next after designation as a member of such Committee or until the earlier termination as a director. The Chief Executive Officer shall always be designated as a member of the Executive Committee. The Board may by resolution appoint one member as the Chairman of the Executive Committee who shall preside at all meetings of such Committee. In the absence of said Chairman, the Chief Executive Officer shall preside at all such meetings. In the absence of both the Chairman of the Executive Committee and the Chief Executive Officer, the Chairman of the Board shall preside at all such meetings. In the absence of the Chairman of the Executive Committee and the Chief Executive Officer and the Chairman of the Board, the President shall preside at all such meetings. In the absence of all such persons, a majority of the members of the Executive Committee present shall choose a chairman to preside at such meetings. The Secretary, or if the Secretary shall be absent from such meeting, any person (who shall be an Assistant Secretary, if any of them shall be present at such meeting) 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 -7- Executive Committee, of which regular meetings notice need not be given, or as shall be fixed by the Chairman of the Executive Committee or in the absence of the Chairman of the Executive Committee the Chief Executive Officer and specified in the notice of such meeting. Special meetings of the Executive Committee may be called by the Chairman of the Executive Committee or by the Chief Executive Officer. Notice of each such special meeting of the Executive Committee (and of each regular meeting for which notice shall be required), stating the time and place thereof shall be mailed, postage prepaid, to each member of the Executive Committee, by first-class mail, at least four days before the day on which such meeting is to be held, or shall be sent by facsimile transmission or comparable medium, or be delivered personally or by telephone, at least twenty-four hours before the time at which such meeting is to be held; but notice need not be given to a member of the Executive Committee who shall waive notice thereof as provided in Article IX of these By-laws, and any meeting of the Executive Committee shall be a legal meeting without any notice thereof having been given, if all the members of such Committee shall be present thereat. SECTION 4. Quorum and Manner of Acting of the Executive Committee. Four members of the Executive Committee shall constitute a quorum for the transaction of business, and the act of a majority of the members of the Executive Committee present at a meeting at which a quorum shall be present shall be the act of the Executive Committee. Participating in a meeting by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other shall constitute presence at a meeting of the Executive Committee. The members of the Executive Committee shall act only as a committee and individual members shall have no power as such. SECTION 5. Other Committees. The Board may, by resolution adopted by a majority of the Board, designate members of the Board to constitute other committees, which shall have, and may exercise, such powers as the Board may by resolution delegate to them, and shall in each case consist of such number of directors as the Board may determine; provided, however, that each such committee shall have at least three directors as members thereof. Such a committee may either be constituted for a specified term or may be constituted as a standing committee which does not require annual or periodic reconstitution. A majority of all the members of any such committee may determine its action and its quorum requirements and may fix the time and place of its meetings, unless the Board shall otherwise provide. Participating in a meeting by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other shall constitute presence at a meeting of such other committees. In addition to the foregoing, the Board may, by resolution adopted by a majority of the Board, create a committee of indeterminate membership and duration and not subject to the limitations as to the membership, quorum and manner of meeting and acting prescribed in these By-laws, which committee, in the event of a major disaster or catastrophe or national -8- emergency which renders the Board incapable of action by reason of the death, physical incapacity or inability to meet of some or all of its members, shall have, and may exercise all the powers of the Board in the management of the business and affairs of the Corporation (including, without limitation, the power to authorize the seal of the Corporation to be affixed to all papers which may require it and the power to fill vacancies in the Board). An act of such committee taken within the scope of its authority shall be an act of the Board. SECTION 6. Changes in Committees; Resignations; Removals; Vacancies. The Board shall have power, by resolution adopted by a majority of the Board, at any time to change or remove the members of, to fill vacancies in, and to discharge any committee created pursuant to these By-laws, either with or without cause. Any member of any such committee may resign at any time by giving written notice to the Board or the Chairman of the Board or the Secretary. Such resignation shall take effect upon receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, acceptance of such resignation shall not be necessary to make it effective. Any vacancy in any committee, whether arising from death, resignation, an increase in the number of committee members or any other cause, shall be filled by the Board in the manner prescribed in these By-laws for the original appointment of the members of such committee. ARTICLE V OFFICERS SECTION 1. Number and Qualifications. The officers of the Corporation shall include the Chairman of the Board, 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, and may include one or more Assistant Treasurers, one or more Assistant Secretaries, and one or more Assistant Controllers. Such 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. The officers of the Corporation may include one or more Vice Chairmen of the Board and the Board may from time to time elect such officers. SECTION 2. Resignations. Any officer of the Corporation may resign at any time by giving written notice of resignation to the Board, the Chairman of the Board, the Chief Executive Officer or the Secretary. Any such resignation shall take effect at the time specified therein, or, if the time when it shall become effective shall not be specified therein, then it shall become effective upon its receipt; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. -9- 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 shall in the absence or incapacity of the President, 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 -10- duties and functions and exercise all the powers of the Chairman of the Board. SECTION 8. Designated Officers. (a) Chief Executive Officer. Either the Chairman of the Board, or the President, as the Board of Directors may designate, shall be the Chief Executive Officer of the Corporation. The officer so designated shall have, in addition to the powers and duties applicable to the office set forth in Section 5 or 7 of this Article V, general and active supervision over the business and affairs of the Corporation and over its several officers, agents, and employees, subject, however, to the control of the Board. The Chief Executive Officer shall see that all orders and resolutions of the Board are carried into effect, be an ex officio member of all committees of the Board (except the Audit Committee and committees specifically empowered to fix or approve the Chief Executive Officer's compensation or to grant or administer bonus, option or other similar plans in which the Chief Executive Officer is eligible to participate), and, in general, shall perform all duties incident to the position of Chief Executive Officer and such other duties as may from time to time be assigned by the Board. (b) Other Designated Officers. The Board of Directors may designate officers to serve as Chief Financial Officer, Chief Accounting Officer and other such designated positions and to fulfill the responsibilities of such designated positions in addition to their duties as officers as set forth in this Article V. SECTION 9. Executive Vice Presidents, Senior Vice Presidents and Vice Presidents. Each Executive and Senior Vice President shall perform all such duties as from time to time may be assigned by the Board or the Chairman of the Board or a Vice Chairman of the Board or the President. Each Vice President shall perform all such duties as from time to time may be assigned by the Board or the Chairman of the Board or a Vice Chairman of the Board or the President or an Executive or a Senior Vice President. Any Vice President may sign certificates representing shares of stock of the Corporation pursuant to the provisions of Section 1 of Article VII of these By-laws. SECTION 10. Treasurer. The treasurer shall: (a) have charge and custody of, and be responsible for, all the funds and securities of the Corporation, and may invest the same in any securities, may open, maintain and close accounts for effecting any and all purchase, sale, investment and lending transactions in securities of any and all kinds for and on behalf of the Corporation or any employee pension or benefit plan fund or other fund established by the Corporation, as may be permitted by law; (b) keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation; -11- (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. In case one or more Assistant Treasurers shall be elected, the Treasurer may delegate to them the authority to perform such duties as the Treasurer may determine. 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. In case one or more Assistant Secretaries shall be elected, the Secretary may delegate to them authority to perform such duties as the Secretary may determine. SECTION 12. Controller. The Controller shall: -12- (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. In case one or more Assistant Controllers shall be elected, the Controller may delegate to them authority to perform such duties as the Controller may determine. 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 -13- bank, trust company or other institution, or from any firm, corporation or individual, and for such loans and advances may make, execute and deliver promissory notes, bonds or other certificates or evidences of indebtedness of the Corporation, but in making such loans or advances no officer or officers shall mortgage, pledge, hypothecate or transfer any securities or other property of the Corporation, except when authorized by resolution adopted by the Board. SECTION 3. Checks, Drafts, etc. All checks, drafts, bills of exchange or other orders for the payment of money out of the funds of the Corporation, and all notes or other evidences of indebtedness of the Corporation, shall be signed in the name and on behalf of the Corporation by such persons and in such manner as shall from time to time be authorized by the Board or the Executive Committee or authorized by the Treasurer or any Assistant 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 -14- corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in any capacity, against judgments, fines, amounts paid in settlement and reasonable expenses, including attorneys' fees actually and necessarily incurred as a result of such action or proceeding, or any appeal therein. Such indemnification shall be a contract right and shall include the right to be paid advances of any expenses incurred by such person in connection with such action, suit or proceeding, consistent with the provisions of applicable law in effect at any time. Indemnification shall be deemed to be 'permitted' within the meaning of the first sentence hereof if it is not expressly prohibited by applicable law as in effect at the time. ARTICLE VII SHARES SECTION 1. Stock Certificates. Each owner of stock of the Corporation shall be entitled to have a certificate, in such form as shall be approved by the Board, certifying the number of shares of stock of the Corporation owned. The certificates representing shares of stock shall be signed in the name of the Corporation by the Chairman of the Board or a Vice Chairman of the Board or the President or a Vice President and by the Secretary or an Assistant 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, or Assistant Secretary, and transfer agent or a transfer clerk acting on behalf of the Corporation upon such certificates may be facsimiles, engraved or printed. In case any officer, transfer agent or transfer clerk acting on behalf of the Corporation ceases to be such officer, transfer agent, or transfer clerk before such certificates shall be issued, they may nevertheless be issued by the Corporation with the same effect as if they were still such officer, transfer agent or transfer clerk at the date of their issue. SECTION 2. Books of Account and Record of Stockholders. There shall be kept at the office of the Corporation correct books of account of all its business and transactions, minutes of the proceedings of stockholders, Board, and Executive Committee, and a book to be known as the record of stockholders, containing the names and addresses of all persons who are stockholders, the number of shares of stock held, and the date when the stockholder became the owner of record thereof. SECTION 3. Transfers of Stock. Transfers of shares of stock of the Corporation shall be made on the record of stockholders of the Corporation only upon authorization by the registered holder thereof, or by an attorney thereunto authorized by power of attorney duly executed and filed with the Secretary or with a transfer agent or transfer clerk, and on surrender of the certificate or certificates for such shares properly endorsed or accompanied by a duly executed stock transfer power and the payment of all -15- taxes thereon. The person in whose name shares of stock shall stand on the record of stockholders of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation. Whenever any transfers of shares shall be made for collateral security and not absolutely and written notice thereof shall be given to the Secretary or to such transfer agent or transfer clerk, such fact shall be stated in the entry of the transfer. SECTION 4. Regulations. The Board may make such additional rules and regulations as it may deem expedient, not inconsistent with these By-laws, concerning the issue, transfer and registration of certificates for shares of stock of the Corporation. It may appoint, or authorize any officer or officers to appoint, one or more transfer agents or one or more transfer clerks and one or more registrars and may require all certificates of stock to bear the signature or signatures of any of them. SECTION 5. Fixing of Record Date. The Board shall fix a time not exceeding fifty nor less than ten days prior to the date then fixed for the holding of any meeting of the stockholders or prior to the last day on which the consent or dissent of the stockholders may be effectively expressed for any purpose without a meeting, as the time as of which the stockholders entitled to notice of and to vote at such meeting or whose consent or dissent is required or may be expressed for any purpose, as the case may be, shall be determined, and all persons who were holders of record of voting stock at such time, and no others, shall be entitled to notice of and to vote at such meeting or to express their consent or dissent, as the case may be. The Board may fix a time not exceeding fifty days preceding the date fixed for the payment of any dividend or the making of any distribution or the allotment of rights to subscribe for securities of the Corporation, or for the delivery of evidences of rights or evidences of interests arising out of any change, conversion or exchange of capital stock or other securities, as the record date for the determination of the stockholders entitled to receive any such dividend, distribution, allotment, rights or interests, and in such case only the stockholders of record at the time so fixed shall be entitled to receive such dividend, distribution, allotment, rights or interests. SECTION 6. Lost, Destroyed or Mutilated Certificates. The holder of any certificate representing shares of stock of the Corporation shall immediately notify the Corporation of any loss, destruction or mutilation of such certificate, and the Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it which the owner thereof shall allege to have been lost or destroyed or which shall have been mutilated, and the Corporation may, in its discretion, require such owner or the owner's legal representatives to give to the Corporation a bond in such sum, limited or unlimited, and in such form and with such surety or sureties as the Board in its absolute discretion shall determine, to indemnify the Corporation against any claim that may be made against it on account of the alleged loss or destruction of any such certificate, or the issuance of such new certificate. Anything to the contrary notwithstanding, the Corporation, in its absolute discretion, may refuse to -16- issue any such new certificate, except pursuant to legal proceedings under the laws of the State of New York. SECTION 7. Inspection of Records. The record of stockholders and minutes of the proceedings of stockholders shall be available for inspection, within the limits and subject to the conditions and restrictions prescribed by applicable law. SECTION 8. Auditors. The Board shall employ an independent public or certified public accountant or firm of such accountants who shall act as auditors in making examinations of the consolidated financial statements of the Corporation and its subsidiaries in accordance with generally accepted auditing standards. The auditors shall certify that the annual financial statements are prepared in accordance with generally accepted accounting principles, and shall report on such financial statements to the stockholders and directors of the Corporation. The Board's selection of auditors shall be presented for ratification by the stockholders at the annual meeting. Directors and officers, when acting in good faith, may rely upon financial statements of the Corporation represented to them to be correct by the officer of the Corporation having charge of its books of account, or stated in a written report by the auditors fairly to reflect the financial condition of the Corporation. ARTICLE VIII OFFICES SECTION 1. Principal Office. The principal office of the Corporation shall be at such place in the Town of North Castle, County of Westchester and State of New York as the Board shall from time to time determine. SECTION 2. Other Offices. The Corporation may also have an office or offices other than said principal office at such place or places as the Board shall from time to time determine or the business of the Corporation may require. ARTICLE IX WAIVER OF NOTICE Whenever under the provisions of any law of the State of New York, the Certificate of Incorporation or these By-laws or any resolution of the Board or any committee thereof, the Corporation or the Board or any committee thereof is authorized to take any action after notice to the stockholders, directors or members of any such committee, or after the lapse of a prescribed period of time, such action may be taken without notice and without the lapse of any period of time, if, at any time before or after such action shall be completed, such notice or lapse of time shall be waived in writing by the person or persons entitled to said notice or -17- entitled to participate in the action to be taken, or, in the case of a stockholder, by an attorney thereunto authorized. Attendance at a meeting requiring notice by any person or, in the case of a stockholder, by the stockholder's attorney, agent or proxy, shall constitute a waiver of such notice on the part of the person so attending, or by such stockholder, as the case may be. ARTICLE X FISCAL YEAR The fiscal year of the Corporation shall end on the thirty-first day of December in each year. ARTICLE XI SEAL The Seal of the Corporation shall consist of two concentric circles with the IBM logotype appearing in bold face type within the inner circle and the words 'International Business Machines Corporation' appearing within the outer circle. ARTICLE XII AMENDMENTS These By-laws may be amended or repealed or new By-laws may be adopted by the stockholders at any annual or special meeting, if the notice thereof mentions that amendment or repeal or the adoption of new By-laws is one of the purposes of such meeting. These By-laws, subject to the laws of the State of New York, may also be amended or repealed or new By-laws may be adopted by the affirmative vote of a majority of the Board given at any meeting, if the notice thereof mentions that amendment or repeal or the adoption of new By-laws is one of the purposes of such meeting; provided, however, that if any By-law regulating an impending election of directors is adopted or amended or repealed by the Board, there shall be set forth in the notice of the next meeting of the stockholders for the election of directors the By-law so adopted or amended or repealed, together with a concise statement of the changes made. INTERNATIONAL BUSINESS MACHINES CORPORATION I, the undersigned, Secretary of International Business Machines Corporation, do hereby certify that the foregoing is a true and complete -18- 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 March 28th day of 1994. J.E. HICKEY .................... Secretary -19- EX-11 4 EXHIBIT I COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE UNDER TREASURY STOCK METHOD SET FORTH IN ACCOUNTING PRINCIPLES BOARD OPINION NO. 15
YEAR ENDED DECEMBER 31: ------------------------------------------------------------------------------ 1993* 1992* 1991* 1990 1989 -------------- -------------- -------------- -------------- -------------- Number of shares on which published earnings per share is based: Average outstanding during year........................... 573,239,240 570,896,489 572,003,382 572,647,906 581,102,404 Add--Incremental shares under stock option and stock purchase plans................. -- -- -- 1,665,262 1,488,455 --Incremental shares related to 7 7/8% con- vertible debentures (average)...................... -- -- -- 8,162,976 8,161,799 --Incremental shares related to 5 3/4% CGI convertible bonds (average)...................... -- -- -- -- -- -------------- -------------- -------------- -------------- -------------- Number of shares on which fully diluted earnings per share is based.......................... 573,239,240 570,896,489 572,003,382 582,476,144 590,752,658 -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- Net (loss) earnings applicable to common shareholders (millions)..................... $(8,148) $(4,965) $(2,861) $5,967 $3,722 Add--Net (loss) earnings effect of interest on 7 7/8% convertible debentures (millions)..................... -- -- -- 65 66 --Net (loss) earnings effect of interest on 5 3/4% CGI convertible bonds (millions)..................... -- -- -- -- -- -------------- -------------- -------------- -------------- -------------- Net (loss) earnings on which fully diluted earnings per share is based (millions).... $(8,148) $(4,965) $(2,861) $6,032 $3,788 -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- Fully diluted (loss) earnings per share...................... $(14.22) $(8.70) $(5.01) $10.36 $6.41 Published (loss) earnings per share.......................... $(14.22) $(8.70) $(5.01) $10.42 $6.41
- --------------- * In 1993, 1992, and 1991, incremental shares under stock plans and the effect of the convertible debentures and bonds were not considered for the fully diluted earnings per share calculation due to their antidilutive effect. As such, the amounts reported for primary and fully diluted earnings per share are the same. The 7 7/8% convertible debentures were called and redeemed on November 21, 1992. EX-13 5 FINANCIAL REPORT 18 Report of Management 19 Report of Independent Accountants 20 Management Discussion 32 Consolidated Financial Statements Operations Financial Position Cash Flows Stockholders' Equity 36 Notes to Consolidated Financial Statements A Significant Accounting Policies B Accounting Changes C Marketable Securities D Inventories E Plant, Rental Machines and Other Property F Investments and Sundry Assets G Short-Term Debt H Long-Term Debt I Preferred Stock J Taxes K Research, Development and Engineering L Restructuring Actions M Interest on Debt N Other Liabilities O Environmental P Customer Financing Q Rental Expense and Lease Commitments R Long-Term Performance Plan S Stock Purchase Plan T Retirement Plans U Nonpension Postretirement Benefits V Lines of Credit W Sales and Securitization of Receivables X Financial Instruments Y Segment Information Z Geographic Areas 63 Five-Year Comparison of Selected Financial Data 63 Selected Quarterly Data Financial Highlights International Business Machines Corporations and Subsidiary Companies - -------------------------------------------------------------------------------- (Dollars in millions except per share amounts) 1993 1992 For the Year: Revenue $ 62,716 $ 64,523 Loss before income taxes $ (8,797) $ (9,026) Income taxes $ (810) $ (2,161) Net loss before changes in accounting principles $ (7,987) $ (6,865) Per share of common stock $ (14.02) $ (12.03) Effect of changes in accounting principles * $ (114) $ 1,900 Per share of common stock $ (.20) $ 3.33 Net loss $ (8,101) $ (4,965) Per share of common stock $ (14.22) $ (8.70) Cash dividends paid on common stock $ 905 $ 2,765 Per share of common stock $ 1.58 $ 4.84 Investment in plant, rental machines and other property $ 3,232 $ 4,698 Average number of common shares outstanding (in millions) 573 571 At End of Year: Total assets $ 81,113 $ 86,705 Net investment in plant, rental machines and other property $ 17,521 $ 21,595 Working capital $ 6,052 $ 2,955 Total debt $ 27,342 $ 29,320 Stockholders' equity $ 19,738 $ 27,624 Number of regular, full-time employees 256,207 301,542 Number of stockholders 741,047 764,630 *1993, cumulative effect of Statement of Financial Accounting Standards (SFAS) 112, "Employers' Accounting for Postemployment Benefits"; and 1992, cumulative effect of SFAS 109, "Accounting for Income Taxes." IBM develops, manufactures and sells advanced information processing products, including computers and microelectronic technology, software, networking systems and information technology-related services. We offer value worldwide--through our United States, Canada, Europe/Middle East/Africa, Latin America and Asia Pacific business units--by providing comprehensive and competitive product choices. International Business Machines Corporation and Subsidiary Companies 18 Responsibility for the integrity and objectivity of the financial information presented in this Annual Report rests with IBM management. The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, applying certain estimates and judgments as required. IBM maintains an effective internal control structure. It consists, in part, of organizational arrangements with clearly defined lines of responsibility and delegation of authority, and comprehensive systems and control procedures. We believe this structure provides reasonable assurance that transactions are executed in accordance with management authorization, and that they are appropriately recorded, in order to permit preparation of financial statements in conformity with generally accepted accounting principles and to adequately safeguard, verify, and maintain accountability of assets. An important element of the control environment is an ongoing internal audit program. To assure the effective administration of internal control, we carefully select and train our employees, develop and disseminate written policies and procedures, provide appropriate communication channels, and foster an environment conducive to the effective functioning of controls. We believe that it is essential for the company to conduct its business affairs in accordance with the highest ethical standards, as set forth in the IBM Business Conduct Guidelines. These guidelines, translated into numerous languages, are distributed to employees throughout the world, and reemphasized through internal programs to assure that they are understood and followed. Price Waterhouse, independent accountants, are retained to examine IBM's financial statements. Their accompanying report is based on an examination conducted in accordance with generally accepted auditing standards, including a review of the internal control structure and tests of accounting procedures and records. The Audit Committee of the Board of Directors is composed solely of outside directors, and is responsible for recommending to the Board the independent accounting firm to be retained for the coming year, subject to stockholder approval. The Audit Committee meets periodically and privately with the independent accountants, with our internal auditors, as well as with IBM management, to review accounting, auditing, internal control structure, and financial reporting matters. /s/ Louis V. Gerstner, Jr. /s/ Jerome B. York Louis V. Gerstner, Jr. Jerome B. York Chairman of the Board Senior Vice President and Chief Executive Officer and Chief Financial Officer International Business Machines Corporation and Subsidiary Companies 19 To the Stockholders and Board of Directors of International Business Machines Corporation: In our opinion, the accompanying consolidated financial statements, appearing on pages 32 through 62, present fairly, in all material respects, the financial position of International Business Machines Corporation and its subsidiaries at December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, 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 on these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in the note on accounting changes on pages 37 and 38, the company changed its methods of accounting for postemployment benefits in 1993, income taxes in 1992 and nonpension postretirement benefits in 1991. We concur with these changes. /s/ Price Waterhouse Price Waterhouse 1177 Avenue of the Americas New York, NY 10036 February 16, 1994 International Business Machines Corporation and Subsidiary Companies 20 The following table sets forth selected income and expense items: Percentage of Total Revenue Percentage Changes* - -------------------------------------------------------------------------------- 1991 1992 1993 Income and Expense Items 1993-92 1992-91 Revenue: 57.3% 52.3% 48.8% Hardware sales (9.4)% (9.0)% 16.2 17.2 17.5 Software (1.4) 5.8 8.6 11.4 15.5 Services 32.1 31.7 11.4 11.8 11.6 Maintenance (4.4) 3.0 6.5 7.3 6.6 Rentals and financing (10.9) 11.9 - -------------------------------------------------------------------------------- 100.0 100.0 100.0 Total revenue (2.8) (0.4) 49.5 54.4 61.5 Total cost 10.0 9.3 - -------------------------------------------------------------------------------- 50.5 45.6 38.5 Gross profit (18.0) (9.9) - -------------------------------------------------------------------------------- Expenses: 33.0 30.3 29.2 Selling, general and administrative (6.4) (8.7) Research, development 10.3 10.1 8.9 and engineering (14.8) (1.8) 5.8 18.0 14.3 Restructuring charges -- -- - -------------------------------------------------------------------------------- 49.1 58.4 52.4 Total operating expenses -- -- - -------------------------------------------------------------------------------- 0.9 0.9 1.8 Other Income, principally interest 94.2 (4.8) 2.2 2.1 2.0 Interest expense (6.4) (4.4) - -------------------------------------------------------------------------------- Net Earnings: Before restructuring charges and 3.5 2.2 0.0 accounting changes -- -- (4.4) (7.7) (12.9) Net loss -- -- - -------------------------------------------------------------------------------- * Percentage changes displayed as (--) are not meaningful. Overview IBM has continued to aggressively restructure its worldwide business operations to improve its competitive position within a rapidly changing market for information technology products and services. Industry demand has slowed in recent years, and the industry continues to suffer from excess capacity and sluggish economic growth, particularly in Europe and Japan. The company's recent business results reflect these realities, as well as an ongoing revenue shift to offerings with lower gross profit margins, such as services and personal computers. During 1993, a number of actions were announced to "right-size" the company. These actions, including reductions in the company's worldwide work force, office space, capacity and related expenses, are intended to bring the company's cost and expense structure in line with industry levels. They were based on the company's assumptions of future industry demand and revenue growth. If these assumptions prove correct, the company believes it will be able to absorb, without resorting to additional special charges, the costs associated with any future productivity improvements. If the company's current view of future industry revenue and demand proves incorrect, the company will have to take further actions. The company's management strategy also shifted in 1993 from the establishment of increasingly autonomous business units--an emerging federation of companies--to remaining an integrated provider of information technology. Management Discussion International Business Machines Corporation and Subsidiary Companies 21 Overall, the company's hardware offerings remain under price and gross profit margin pressure. Mainframe processor revenue and margins declined significantly in the last year, and this trend may continue. Revenue and volume trends were positive for personal computers and RISC System/6000* over the last year. However, personal computers compete in a relatively low margin, price-competitive environment, and the company expects this trend to continue. Other hardware areas are also expected to remain under competitive pressure consistent with recent experience. The company's services offerings, while growing rapidly, are at lower margins than the company's traditional hardware offerings. Due to the changing mix of revenue and gross profit margins, it is uncertain when pressure on the company's cost structure will be diminished. Results of Operations - -------------------------------------------------------------------------------- (Dollars in millions) 1993 1992 1991 Revenue $ 62,716 $ 64,523 $ 64,766 Cost 38,568 35,069 32,073 - -------------------------------------------------------------------------------- Gross profit $ 24,148 $ 29,454 $ 32,693 Gross profit margin 38.5% 45.6% 50.5% - -------------------------------------------------------------------------------- Income before restructuring charges $ 308 $ 3,406 $ 4,673 Operating (loss) income after restructuring charges (8,637) (8,239) 939 - -------------------------------------------------------------------------------- Net earnings before restructuring charges and accounting changes 9 1,417 2,277 Net loss after restructuring charges and accounting changes $ (8,101) $ (4,965) $ (2,861) - -------------------------------------------------------------------------------- Revenue in the United States was $25.7 billion, an increase of 4.3 percent above 1992, following a .8 percent increase in 1992 over 1991. Non-U.S. operations generated revenue of $37.0 billion, a 7.2 percent decrease from 1992, following a decline of 1.1 percent in 1992 from 1991. Gross profit margins, driven by hardware pricing pressures and the company's shift to services revenue, have declined each year from 1991 to 1993. Although the gross profit margin declined 7.1 points in 1993 from 1992, the last five quarters' aggregate gross profit margin has been relatively stable at approximately 38 percent. The company generated $148 million of earnings before taxes and restructuring charges in 1993. After preferred stock dividends, the company had a loss, before restructuring charges and accounting changes, of $.07 per common share. Prior to restructuring charges and the cumulative effect of $114 million ($.20 decrease in earnings per common share) as a result of the company's adoption of Statement of Financial Accounting Standards (SFAS) 112, "Employers' Accounting for Postemployment Benefits," after-tax results were essentially break-even. Including restructuring but prior to the effect of accounting changes, the company had a net, after-tax loss of $8.0 billion ($14.02 per common share) compared with a net, after-tax loss of $6.9 billion in 1992 ($12.03 per common share) and a net, after-tax loss of $.6 billion in 1991 ($1.05 per common share). After restructuring and accounting changes, the company reported, for 1993, 1992, and 1991 respectively, losses of $8.1 billion ($14.22 per common share), $5.0 billion ($8.70 per common share), and $2.9 billion ($5.01 per common share). Management Discussion International Business Machines Corporation and Subsidiary Companies 22 Revenue and Gross Profit The company continued to experience a change in the makeup of its revenue as more of its revenue, 51.2 percent, came from non-hardware sales sources versus 47.7 percent in 1992 and 42.7 percent in 1991. Further, within hardware sales, the mix of revenue from personal systems, which carry a lower margin, increased to 31.7 percent in 1993, versus 23.3 percent in 1992 and 22.9 percent in 1991. This changing mix, as well as continuing price pressures, have driven margins down over the last three years. Hardware sales - -------------------------------------------------------------------------------- (Dollars in millions) 1993 1992 1991 Total revenue $ 30,591 $ 33,755 $ 37,093 Total cost 20,696 19,698 18,571 - -------------------------------------------------------------------------------- Gross profit $ 9,895 $ 14,057 $ 18,522 - -------------------------------------------------------------------------------- Gross profit margin 32.3% 41.6% 49.9% - -------------------------------------------------------------------------------- Worldwide revenue from hardware sales decreased 9.4 percent from 1992, following a decrease of 9.0 percent in 1992 from 1991. Hardware sales revenue from U.S. operations declined 1.4 percent in 1993, compared to a 5.1 percent decline in 1992 from 1991. Hardware sales revenue from non-U.S. operations reflect a decrease of 14.2 percent in 1993, following an 11.2 percent decline in 1992 from 1991. Worldwide gross profit dollars from hardware sales decreased 29.6 percent from 1992, following a decrease of 24.1 percent in 1992 from 1991. Hardware sales gross profit dollars from U.S. operations decreased 28.8 percent in 1993, compared to a 20.7 percent decline in 1992 from 1991. Hardware sales gross profit dollars from non-U.S. operations reflect a decrease of 30.0 percent in 1993, following a 25.9 percent decline in 1992 from 1991. Total cost of hardware sales was higher, primarily due to increased volumes associated with personal systems products. Revenue from processors decreased 27.6 percent in 1993 compared with 1992 and 6.9 percent in 1992 from 1991. These decreases were primarily due to declines in System/390 processor revenue, resulting from price pressures. Application System/400 product revenue declined slightly over the past two years, primarily in Europe, due to lower volumes. Personal systems revenue increased 23.3 percent in 1993 compared with 1992, following a decrease of 7.3 percent in 1992 from 1991. The increase resulted from strong demand for the company's personal computers, offset by price actions. In addition, RISC System/6000 revenue increased, but at a lower rate than in the previous year, reflecting lower growth in demand, particularly in Europe. The decline in 1992 from 1991 reflected the severe price competition experienced by personal computers, partially offset by strong growth in RISC System/6000. On a volume basis, 1993 personal computer shipments were approximately 4.3 million units, a growth of more than 1.0 million units over 1992, and a growth of more than 1.4 million units over 1991. Storage products revenue decreased 18.2 percent in 1993, following a decrease of 12.9 percent in 1992 from 1991. These declines were a result of continuing price competition across most storage products. Other hardware sales revenue increased 68.1 percent in 1993 over the previous year, following an increase of 10.3 percent in 1992 from 1991. These increases were primarily a result of higher original equipment manufacturer (OEM) revenue. Management Discussion International Business Machines Corporation and Subsidiary Companies 23 Information on industry segments and classes of similar products or services is included on pages 59 and 60. The product revenue trends demonstrated in this discussion and in that disclosure are indicative, in all material respects, of hardware sales activity. Hardware sales gross profit margin decreases reflect the continuing price competition for high-end products and personal computers; in addition, personal computer revenues, which carry a lower gross profit margin, were a proportionally larger part of hardware sales. Software - -------------------------------------------------------------------------------- (Dollars in millions) 1993 1992 1991 Total revenue $ 10,953 $ 11,103 $ 10,498 Total cost 4,310 3,924 3,865 - -------------------------------------------------------------------------------- Gross profit $ 6,643 $ 7,179 $ 6,633 Gross profit margin 60.7% 64.7% 63.2% - -------------------------------------------------------------------------------- Software revenue declined 1.4 percent in 1993 from 1992, following an increase of 5.8 percent in 1992 over 1991. The decline was primarily a result of lower one-time-charge revenue which followed decreased AS/400 computer placements. Software gross profit dollars decreased 7.5 percent in 1993 from 1992, following an increase of 8.2 percent in 1992 over 1991. The decrease in gross profit margin in 1993 from 1992 was partially a result of lower one-time-charge revenue as denoted above and a higher level of program product write-downs that were recorded as a result of the continuing review of the company's portfolio of software offerings. Increased amortization of program product costs resulting from new offerings and shortened amortization periods instituted by the company in 1992 also contributed to the decline in gross profit margin. Services - -------------------------------------------------------------------------------- (Dollars in millions) 1993 1992 1991 Services $ 7,648 $ 5,530 $ 4,144 Federal Systems Company 2,063 1,822 1,438 - -------------------------------------------------------------------------------- Services revenue excluding maintenance $ 9,711 $ 7,352 $ 5,582 Cost 8,279 6,051 4,531 - -------------------------------------------------------------------------------- Gross profit $ 1,432 $ 1,301 $ 1,051 Gross profit margin 14.7% 17.7% 18.8% - -------------------------------------------------------------------------------- Maintenance revenue $ 7,295 $ 7,635 $ 7,414 Cost 3,545 3,430 3,379 - -------------------------------------------------------------------------------- Gross profit $ 3,750 $ 4,205 $ 4,035 Gross profit margin 51.4% 55.1% 54.4% - -------------------------------------------------------------------------------- Total services revenue $ 17,006 $ 14,987 $ 12,996 Cost 11,824 9,481 7,910 - -------------------------------------------------------------------------------- Gross profit $ 5,182 $ 5,506 $ 5,086 Gross profit margin 30.5% 36.7% 39.1% - -------------------------------------------------------------------------------- Services revenue, excluding maintenance, continued to show overall strong growth, increasing 32.1 percent in 1993 over 1992, following an increase of 31.7 percent in 1992 over 1991. Management Discussion International Business Machines Corporation and Subsidiary Companies 24 Services gross profit dollars, excluding maintenance, increased 10.1 percent but the margin decreased 3.0 points from 1992. As a result of ongoing reviews of contract profitability, it was determined that cost adjustments in the current period were required on certain older contracts that were not expected to be profitable. This was the primary cause of the margin decline. Without the Federal Systems Company, which is expected to be sold during the first quarter of 1994, the services gross profit margins, excluding maintenance, were 16.5 percent, 21.3 percent, and 22.7 percent, in 1993, 1992, and 1991, respectively. Maintenance revenue decreased 4.4 percent from 1992, after increasing 3.0 percent in 1992 over 1991. The 1993 decline is primarily due to competitive pressures and lower hardware placements. Maintenance gross profit dollars decreased 10.8 percent year-over-year, following an increase of 4.2 percent in 1992 from 1991. The decreases in gross profit dollars and margin percent reflect the increasingly competitive nature of the business. This trend is expected to continue. Rentals and financing - -------------------------------------------------------------------------------- (Dollars in millions) 1993 1992 1991 Total revenue $ 4,166 $ 4,678 $ 4,179 Total costs 1,738 1,966 1,727 - -------------------------------------------------------------------------------- Gross profit $ 2,428 $ 2,712 $ 2,452 Gross profit margin 58.3% 58.0% 58.7% - -------------------------------------------------------------------------------- Rentals and financing revenue decreased 10.9 percent from 1992, following an increase of 11.9 percent in 1992 over 1991. Rentals and financing gross profit dollars decreased 10.5 percent, following a 10.6 percent increase in 1992 over 1991. The decline in revenue and gross profit dollars in 1993 is a result of a decline in high-end hardware placements in 1993 as compared with 1992. Operating Expenses - -------------------------------------------------------------------------------- (Dollars in millions) 1993 1992 1991 Selling, general and administrative $ 18,282 $ 19,526 $ 21,375 Percentage of revenue 29.2% 30.3% 33.0% - -------------------------------------------------------------------------------- Research, development and engineering $ 5,558 $ 6,522 $ 6,644 Percentage of revenue 8.9% 10.1% 10.3% - -------------------------------------------------------------------------------- Selling, general and administrative (SG&A) expense decreased 6.4 percent from 1992, which follows a decrease of 8.7 percent in 1992 from 1991. These decreases reflect the results of the company's focus on productivity, restructuring programs, and expense controls. Work force related SG&A decreased 11.7 percent from 1992, which followed a decrease of 7.3 percent from 1991. The other charges component of SG&A increased primarily as a result of exchange losses from currency revaluations of cash in countries with highly inflationary environments. These exchange losses are largely offset by higher interest income as a result of higher interest rates in those countries. Research, development and engineering expense decreased 14.8 percent in 1993, following a decrease of 1.8 percent in 1992 from 1991. The reduction in research, development and engineering expense reflects the company's reprioritization of development efforts to growth areas as well as a focus on productivity, restructuring programs, and expense controls. Management Discussion International Business Machines Corporation and Subsidiary Companies 25 Restructuring Charges Restructuring charges were $8.9 billion in 1993, $11.6 billion in 1992, and $3.7 billion in 1991. These charges include expenses associated with work force reductions, facility consolidations, capacity reductions, and other related actions to streamline the company. These charges are discussed further on pages 45 and 46. Other Income Other income, principally interest, was $1.1 billion in 1993, almost double that of 1992. This increase reflects higher levels of available cash and higher interest rates in countries whose economic environment is highly inflationary. Although Other income increased, exchange losses from currency revaluations of cash largely offset this increase. Exchange losses are reflected in SG&A expense. Provision For Income Taxes The provision for income taxes resulted in a benefit of $810 million in 1993, a benefit of $2,161 million in 1992, and a charge of $716 million in 1991. The effective tax rates of (9) percent in 1993, (24) percent in 1992, and 607 percent in 1991 were principally due to limited tax benefits on restructuring charges, along with a high effective tax rate on earnings in certain non-U.S. operations. Excluding the effects of restructuring charges, the effective tax rates were 94 percent in 1993, 46 percent in 1992, and 41 percent in 1991. The high effective tax rate in 1993 resulted from earnings in non-U.S. operations of $1.3 billion at an average tax rate of 50.2 percent, offset by a loss before taxes in the U.S. of $1.1 billion at a tax rate of 44.5 percent. The company accounts for income taxes under SFAS 109, "Accounting for Income Taxes," which provides for recognition of deferred tax assets if realization of such assets is more likely than not. In assessing the likelihood of realization, management considered estimates of future taxable income. The total amount of U.S. federal taxable income needed to realize U.S. federal deferred tax assets, net of valuation allowances, is approximately $15.0 billion. In estimating the amount of U.S. taxable income that may be available to the company to utilize as many deferred tax assets as possible, the last three years' taxable income was considered. This was approximately $(3.0) billion (estimated loss) for 1993, $4.4 billion for 1992, and $6.4 billion for 1991. The company also considered the impact on past and future taxable income of restructuring actions already announced. If, in the future, it should become advantageous, the company can again capitalize and amortize research and development expenditures for tax purposes, which would increase current taxable income. Changes in Accounting Principles In the fourth quarter of 1993, the company implemented SFAS 112, "Employers' Accounting for Postemployment Benefits," effective January 1, 1993. The cumulative effect of adopting this statement, which is discussed further on page 37, resulted in a one-time charge of $114 million (net of approximately $61 million of income tax benefits). Most of this charge was included in U.S. operations. Effective January 1, 1992, the company implemented SFAS 109. The cumulative effect of adopting this statement resulted in a one-time benefit to net earnings of $1,900 million for recognition of previously unrecognized tax benefits. In the first quarter of 1991, the company implemented SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." The transition effect of adopting this statement resulted in a one-time charge of $2,263 million to net earnings (net of approximately $350 million of income tax benefits). Management Discussion International Business Machines Corporation and Subsidiary Companies 26 Fourth Quarter For the quarter ended December 31, 1993, the company announced earnings of $382 million ($.62 per common share) compared with a net loss of $45 million ($.08 per common share) before restructuring charges in the fourth quarter of 1992. After restructuring charges in the fourth quarter of 1992, the company had posted a loss of $5.5 billion ($9.57 per common share). Revenue for the fourth quarter of 1993 totaled $19.4 billion, down one percent compared with the same period of 1992. U.S. revenue grew by 9.0 percent in the fourth quarter compared with the same period of 1992, continuing a quarterly improvement trend. Revenue from Europe and Asia, after currency adjustments, declined in the fourth quarter by 1.0 percent and 4.0 percent, respectively, compared with 1992's fourth quarter. The company's hardware sales revenue was $10.4 billion in the fourth quarter, a decline of 5.4 percent compared with the same period of 1992. Services revenue was $3.2 billion in fourth quarter 1993, up 31.9 percent from 1992. Software revenue declined by 3.8 percent, largely due to a decline in one-time-charge software, principally AS/400 software. Maintenance, rentals and financing revenue also decreased year-over-year. Within specific hardware product areas, personal computer revenue rose strongly in the quarter, compared with 1992's fourth quarter, and RISC System/6000 revenue increased. AS/400 revenue fell primarily due to sluggish European demand. Mainframe and high-end disk drive revenue also declined. The company's overall gross margin was down about one point in the fourth quarter compared to the same period of 1992. Hardware sales margins improved in the fourth quarter, and software, maintenance and services margins declined. Total expenses, including net interest expense and excluding restructuring charges, declined 9.0 percent in the fourth quarter compared with the same period of 1992. Financial Condition The Consolidated Statement of Financial Position was significantly impacted by actions taken by the company during 1993, including work force and capacity reductions, and issuance of new debt and equity instruments. Working Capital - -------------------------------------------------------------------------------- (Dollars in millions) 1993 1992 Current assets $ 39,202 $ 39,692 Current liabilities 33,150 36,737 - -------------------------------------------------------------------------------- Working capital $ 6,052 $ 2,955 Current ratio 1.18:1 1.08:1 - -------------------------------------------------------------------------------- Current assets decreased $.5 billion because of declines in receivables of $2.2 billion and inventories of $.8 billion, offset by increases in cash, cash equivalents and marketable securities of $1.5 billion and prepaid expenses and other current assets of $1.0 billion. The decline in accounts receivable is primarily attributable to the company's securitization of assets and lower year-to-year volumes in financing activities. The increase in prepaid expenses and other current assets is due to an increase in deferred tax assets ($2.8 billion from $2.5 billion), and the net assets of the Federal Systems Company ($.7 billion), which have been reclassified to current assets being held for sale. Management Discussion International Business Machines Corporation and Subsidiary Companies 27 Current liabilities decreased $3.6 billion because of a reduction of $4.4 billion in short-term debt, reflecting the company's ongoing efforts to reduce its overall outstanding debt obligations, offset by a net increase of $.8 billion in other current liabilities (increases in taxes, accounts payable, deferred income, and other accrued expenses and liabilities and a decrease in accrued compensation and benefits). Investments The company's capital expenditures for plant and other property were approximately $2.5 billion for the year ended December 31, 1993, a decrease of approximately $2.1 billion from 1992. The net book value of plant, rental machines and other property decreased $4.1 billion from year-end 1992, primarily due to capacity reduction reserves recorded in the second quarter, and depreciation exceeding current levels of capital additions. In addition to software development expense included in research, development and engineering expense, the company capitalized $1.5 billion of software costs during 1993, versus the $1.8 billion capitalized in 1992. Ongoing amortization of capitalized software costs for the same period amounted to $2.0 billion, an increase of $.5 billion compared to 1992. In 1992, the company incurred an additional $.7 billion in accelerated amortization of capitalized software costs, which were charged to restructuring in the third quarter. Debt and Equity - -------------------------------------------------------------------------------- (Dollars in millions) 1993 1992 Short-term debt $ 12,097 $ 16,467 Long-term debt 15,245 12,853 - -------------------------------------------------------------------------------- Total Debt $ 27,342 $ 29,320 Stockholders' equity $ 19,738 $ 27,624 Long-term debt/Equity 77.2% 46.5% - -------------------------------------------------------------------------------- In June 1993, the company issued $1,250 million of 6 3/8 percent notes due June 15, 2000, and $550 million of 7 1/2 percent debentures due June 15, 2013. The net proceeds from the issuance of these debt instruments were used for general corporate purposes, including restructuring actions. Other non-current liabilities increased $3.5 billion from December 31, 1992, due primarily to restructuring actions announced in the second quarter of 1993, and increases in nonpension postretirement benefits. The company accrued for environmental matters, including estimated costs of cleanup of Superfund and other waste sites. Estimated environmental costs are not expected to materially affect the company's financial position or results of operations in future periods. Further discussion of these accruals appears on pages 46 and 47. Stockholders' equity decreased from $27.6 billion at December 31, 1992, to $19.7 billion at December 31, 1993, resulting from the 1993 net loss principally reflecting the restructuring charge, partially offset by an increase of $1.1 billion from the issuance in June 1993 of depositary shares representing ownership of Series A 7 1/2 percent preferred stock. Net proceeds from the preferred stock issuance were used for general corporate purposes, including restructuring actions. Management Discussion International Business Machines Corporation and Subsidiary Companies 28 Currency Rate Fluctuations The majority of worldwide currencies weakened versus the U.S. dollar in 1993 with the major exception being the Japanese yen. Approximately 85 percent of the company's non-U.S. business is conducted in local currency environments. Assets and liabilities denominated in local currencies translate into fewer U.S. dollars as those local currencies weaken. Changes in net worth arising from these currency fluctuations are accumulated in the equity translation adjustments component of Stockholders' Equity. As of December 31, 1993, the cumulative translation adjustment was $1.7 billion, which includes a decline in this component of $.3 billion in 1993. In the high inflation environments of Latin America, translation adjustments are reflected in period income, as required by SFAS 52, "Foreign Currency Translation." Wherever possible, the company minimizes currency risk in these countries by linking prices and contracts to dollars and by financing operations locally. The company is, to a great degree, protected from currency risk in its business operations by manufacturing and developing a significant portion of its product line in non-U.S. countries, so that costs reflect local economic conditions. Also, financial hedging instruments are used to minimize currency risks related to the repatriation of dividends and royalties from non-U.S. subsidiaries. Currency rate variations did not have a material effect on the company's operating results in 1993, 1992, or 1991. Liquidity Management expects that the funds required to continue the level of investments necessary to ensure the company's competitiveness, as well as funds used to pay for restructuring actions and dividends, will be generated primarily from operations. The company continued to take actions during 1993 to further enhance its liquidity. The company's Board of Directors approved management's plan to issue, instead of purchase on the open market, stock to be sold to employees under the IBM Employees Stock Purchase Plan. During 1993, approximately 3.3 million shares of IBM common stock were issued for this purpose. The company's Board of Directors also authorized up to 15 million shares of IBM common stock for contribution to the IBM U.S. Retirement Plan Trust Fund (the "Fund") through 1994. On September 9, 1993, the company registered up to 6.5 million shares of IBM common stock with the Securities and Exchange Commission for contribution to the fund. The company contributed approximately 5.8 million of those shares to the fund. Approximately 9.2 million shares of IBM common stock remain available for contribution to the fund through 1994. During 1993, as part of the company's worldwide program of securitizing assets and improving its liquidity, the company received net cash proceeds from the sale and securitization of trade and financing receivables to investors of approximately $2.5 billion. Sales and securitization of trade receivables accelerate the collections of such receivables, which typically range between 30-60 days. Sales of financing receivables accelerates collection by up to five years. In December 1993, the company entered into a $10.0 billion committed global credit facility as part of the company's ongoing efforts to ensure appropriate levels of liquidity. This subject is discussed further on pages 56 and 57. Management Discussion International Business Machines Corporation and Subsidiary Companies 29 In July of 1993, Standard & Poor's changed its Senior Long-Term Debt Rating of the company and its rated subsidiaries from AA- to A, and its Short-Term Debt Rating from A-1+ to A-1. Standard & Poor's also changed its Preferred Stock Rating of the company from A+ to A-. Standard & Poor's has a negative rating outlook on the company. In August, Moody's changed its Senior Long-Term Debt Rating of the company and its rated subsidiaries from A1 to A3, and its Short-Term Debt Rating from Prime-1 to Prime-2. Moody's also changed its Preferred Stock Rating of the company from A2 to Baa1. In September, Duff & Phelps changed its Senior Long-Term Debt Rating of the company and its rated subsidiaries from AA- to A and assigned initial ratings of Duff 1 for the company and its rated subsidiaries' Short-Term Debt and A- for the company's Preferred Stock. In addition, Fitch Investors Service assigned initial ratings for the company and its rated subsidiaries of A for Senior-Long-Term Debt and F-1 for Short-Term Debt and A- for the company's Preferred Stock. The following table summarizes the company's cash flows from operating, investing, and financing activities as prescribed by Generally Accepted Accounting Principles (GAAP), as reflected in the Consolidated Statement of Cash Flows on page 34: - -------------------------------------------------------------------------------- (Dollars in millions) 1993 1992 1991 Net cash provided from (used in): Operating activities $ 8,327 $ 6,274 $ 6,725 Investing activities (4,202) (5,878) (7,686) Financing activities (1,914) 654 1,368 Effect of exchange rate changes on cash and cash equivalents (796) (549) (315) - -------------------------------------------------------------------------------- Net change in cash and cash equivalents $ 1,415 $ 501 $ 92 - -------------------------------------------------------------------------------- While the company had a net loss in 1993, principally as a result of restructuring charges, the positive cash flow from operating activities was primarily driven by the company's activities relative to securitization of assets and restructuring charges taken, which had no current period cash effect. There will, however, be cash outflows in future periods related to these restructuring charges. The period-to-period improvement in cash flow used in investing activities is primarily attributable to the company's reduced, more focused investment in plant, rental machines and other property. In June 1993, the company issued $1.8 billion of new notes and debentures and $1.1 billion of preferred stock. The net proceeds from these new debt and equity financings, and the reduction in quarterly dividends as announced in January and July of 1993, had a positive effect on financing cash flow from the 1992 period, which was more than offset by payments to settle short-term debt. The company's "mainline" business involves the sales of information technology products and services as distinct from its customer financing and certain other activities. The company believes it is important to understand the different dynamics of these two businesses. Therefore, the company has derived a model for separately measuring cash flow of the "mainline" business. The model is not, however, intended to replace the GAAP cash flow above, but is supplementary in nature. Under this model, mainline cash flow from Management Discussion International Business Machines Corporation and Subsidiary Companies 30 operations was approximately $.8 billion in 1993. Operations includes operating and investing activities, but excludes the impacts of changes in customer financing assets and net cash proceeds from securitization of trade accounts receivable, which are viewed as financing in nature. Financing Risks Customer financing is an integral part of the company's total worldwide offerings. Financial results of customer financing can be found on pages 47 through 50. 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. Although the company's position is slightly on the short-funded side to take advantage of lower short-term interest rates, the company generally strives to match liability and asset maturities, as well as currencies, and insures that the current cost of funding is reflected in pricing of new transactions in order to minimize interest and currency risk. 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 1993 and 1992, the remarketing effort generated profits. The following table depicts an approximation of the unguaranteed residual value maturities for the company's sales-type leases, as well as a projection of net book value of operating leases at the end of the lease terms as of December 31, 1993. The following schedule excludes approximately $100 million of estimated residual value associated with non-IBM equipment. - -------------------------------------------------------------------------------- (Dollars in millions) Total 1994 1995 1996 1997 Sales-type leases $ 760 $ 240 $ 250 $ 200 $ 70 Operating leases 250 175 50 20 5 - -------------------------------------------------------------------------------- Total residual value $ 1,010 $ 415 $ 300 $ 220 $ 75 - -------------------------------------------------------------------------------- Federal Systems Company On December 13, 1993, IBM and Loral Corporation jointly announced the signing of a definitive agreement for the purchase of the Federal Systems Company (FSC) by Loral for $1.575 billion in cash. The transaction is effective January 1, 1994, and is expected to close during the first calendar quarter of 1994. The amount of any gain, and ultimate cash proceeds, resulting from this sale may be dependent on future performance of the Advanced Automation System (AAS) contract for the Federal Aviation Authority (FAA) and certain other open matters. The FAA is conducting a re-examination of the AAS contract, and congressional hearings are scheduled with regard to air traffic control and the future role of the FAA. FSC markets specialized products and services to the defense, space, and other agencies of the U.S. government and several non-U.S. governments. Federal Systems Marketing, which sells the company's standard products to government agencies, is not part of the transaction. In 1993, FSC had net earnings of $58 million on revenues of $2.3 billion. It had net assets of $751 million and approximately 10,000 employees as of December 31, 1993. Management Discussion International Business Machines Corporation and Subsidiary Companies 31 Employees Percentage Changes - -------------------------------------------------------------------------------- 1993 1992 1991 1993-92 1992-91 IBM/Wholly owned subsidiaries 256,207 301,542 344,396 (15.0)% (12.4)% Not Wholly owned subsidiaries 10,989 6,468 157 69.9% -- Complementary 35,000 29,000 33,000 20.7% (12.1)% - -------------------------------------------------------------------------------- As of December 31, 1993, "full-time" employees were down 45,335 from 1992, 88,189 from 1991, and more than 150,000 from the peak level reached in 1986. The company continues to form business entities to enhance efficiencies and some of these entities, while not wholly owned, are consolidated into the company's financial statements. The increase in employees in the not wholly owned subsidiaries category since 1991 results primarily from the formation of the following IBM business ventures: Advantis (2,876), Information Systems Management Corporation (1,931), and Advanced Management Services Unit (1,089). The company's complementary work force comprises various other workers hired under temporary, part-time, and limited-term-employment arrangements to meet specific business needs in a flexible and cost-effective manner. Looking Forward Although the company returned to profitability in the fourth quarter of 1993, it was a difficult year and significant challenges remain. In 1994, the company will continue to reduce its expenses as restructuring and other productivity programs progress. By 1996, it is expected those actions, begun in 1993, to reduce expense structure will yield approximately $7.0 billion in annual savings. The company will continue to develop a comprehensive set of strategies to meet its long-term-growth objectives and expects the results of this strategic work to begin to emerge in 1994. Management Discussion International Business Machines Corporation and Subsidiary Companies 32 Consolidated Statement of Operations (Dollars in millions except per share amounts) - -------------------------------------------------------------------------------- For the year ended December 31: Notes 1993 1992 1991 Revenue: Hardware sales $ 30,591 $ 33,755 $ 37,093 Software 10,953 11,103 10,498 Services 9,711 7,352 5,582 Maintenance 7,295 7,635 7,414 Rentals and financing P 4,166 4,678 4,179 - -------------------------------------------------------------------------------- Total Revenue 62,716 64,523 64,766 - -------------------------------------------------------------------------------- Cost: Hardware sales 20,696 19,698 18,571 Software 4,310 3,924 3,865 Services 8,279 6,051 4,531 Maintenance 3,545 3,430 3,379 Rentals and financing 1,738 1,966 1,727 - -------------------------------------------------------------------------------- Total Cost 38,568 35,069 32,073 - -------------------------------------------------------------------------------- Gross profit 24,148 29,454 32,693 Operating Expenses: Selling, general and administrative 18,282 19,526 21,375 Research, development and engineering K 5,558 6,522 6,644 Restructuring charges L 8,945 11,645 3,735 - -------------------------------------------------------------------------------- Total Operating Expenses 32,785 37,693 31,754 - -------------------------------------------------------------------------------- Operating (Loss) Income (8,637) (8,239) 939 Other income, principally interest 1,113 573 602 Interest expense M 1,273 1,360 1,423 - -------------------------------------------------------------------------------- (Loss) Earnings before Income Taxes (8,797) (9,026) (118) (Benefit) provision for income taxes J (810) (2,161) 716 - -------------------------------------------------------------------------------- Net loss before changes in accounting principles (7,987) (6,865) (598) Effect of changes in accounting principles B (114) 1,900 (2,263) - -------------------------------------------------------------------------------- Net Loss (8,101) (4,965) (2,861) Preferred stock dividends 47 -- -- - -------------------------------------------------------------------------------- Net loss applicable to common shareholders $ (8,148) $ (4,965) $ (2,861) - -------------------------------------------------------------------------------- Per Share of Common Stock Amounts: Before changes in accounting principles $ (14.02) $ (12.03) $ (1.05) Effect of changes in accounting principles B (.20) 3.33) (3.96) - -------------------------------------------------------------------------------- Net loss applicable to common shareholders $ (14.22) $ (8.70) $ (5.01) - -------------------------------------------------------------------------------- Average Number of Common Shares Outstanding: 1993--573,239,240; 1992--570,896,489; 1991--572,003,382 The notes on pages 36 through 62 are an integral part of this statement. Management Discussion International Business Machines Corporation and Subsidiary Companies 33 Consolidated Statement of Financial Position (Dollars in millions) - -------------------------------------------------------------------------------- At December 31: Notes 1993 1992 Assets - -------------------------------------------------------------------------------- Current Assets: Cash $ 873 $ 1,090 Cash equivalents 4,988 3,356 Marketable securities, at cost, which approximates market C 1,272 1,203 Notes and accounts receivable--trade, net of allowances 11,676 12,829 Sales-type leases receivable 6,428 7,405 Other accounts receivable 1,308 1,370 Inventories D 7,565 8,385 Prepaid expenses and other current assets 5,092 4,054 - -------------------------------------------------------------------------------- Total Current Assets 39,202 39,692 - -------------------------------------------------------------------------------- Plant, Rental Machines and Other Property E 47,504 52,786 Less: Accumulated depreciation 29,983 31,191 - -------------------------------------------------------------------------------- Plant, Rental Machines and Other Property--Net 17,521 21,595 - -------------------------------------------------------------------------------- Investments and Other Assets: Software, less accumulated amortization (1993, $10,143; 1992, $8,531) 3,703 4,119 Investments and sundry assets f 20,687 21,299 - -------------------------------------------------------------------------------- Total Investments and Other Assets 24,390 25,418 - -------------------------------------------------------------------------------- Total Assets $ 81,113 $ 86,705 - -------------------------------------------------------------------------------- Liabilities and Stockholders' Equity - -------------------------------------------------------------------------------- Current Liabilities: Taxes $ 1,589 $ 979 Short-term debt G 12,097 16,467 Accounts payable 3,400 3,147 Compensation and benefits 2,053 3,476 Deferred income 3,575 3,316 Other accrued expenses and liabilities 10,436 9,352 - -------------------------------------------------------------------------------- Total Current Liabilities 33,150 36,737 - -------------------------------------------------------------------------------- Long-term debt H 15,245 12,853 Other liabilities N 11,177 7,461 Deferred income taxes J 1,803 2,030 - -------------------------------------------------------------------------------- Total Liabilities 61,375 59,081 - -------------------------------------------------------------------------------- Stockholders' Equity: Preferred stock, par value $.01 per share--shares authorized: 150,000,000 Shares Issued: 1993--11,250,000; 1992--None i 1,091 -- Common stock, par value $1.25 per share--shares authorized: 750,000,000 Shares Issued: 1993--581,388,475; 1992--571,791,950 6,980 6,563 Retained earnings 10,009 19,124 Translation adjustments 1,658 1,962 Treasury stock, at cost (shares: 1993--2,679; 1992--356,222) -- (25) - -------------------------------------------------------------------------------- Total Stockholders' Equity 19,738 27,624 - -------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity $ 81,113 $ 86,705 - -------------------------------------------------------------------------------- The notes on pages 36 through 62 are an integral part of this statement. Management Discussion International Business Machines Corporation and Subsidiary Companies 34 (Dollars in millions) - ------------------------------------------------------------------------------- For the year ended December 31: 1993 1992 1991 Cash Flow from Operating Activities: Net loss $ (8,101) $ (4,965) $ (2,861) Adjustments to reconcile net loss to cash provided from operating activities: Effect of changes in accounting principles 114 (1,900) 2,263 Effect of restructuring charges 5,230 8,312 2,793 Depreciation 4,710 4,793 4,772 Amortization of software 1,951 1,466 1,564 Loss (gain) on disposition of investment assets 151 54 (94) Other changes that provided (used) cash: Receivables 1,185 1,052 (886) Inventories 583 704 (36) Other assets (10) (3,396) 5 Accounts payable 359 (311) 384 Other liabilities 2,155 465 (1,179) - ------------------------------------------------------------------------------- Net cash provided from operating activities 8,327 6,274 6,725 - ------------------------------------------------------------------------------ Cash Flow from Investing Activities: Payments for plant, rental machines and other property (3,154) (4,751) (6,497) Proceeds from disposition of plant, rental machines and other property 793 633 645 Investment in software (1,507) (1,752) (2,014) Purchases of marketable securities and other investments (2,721) (3,284) (4,848) Proceeds from marketable securities and other investments 2,387 3,276 5,028 - ------------------------------------------------------------------------------- Net cash used in investing activities (4,202) (5,878) (7,686) - ------------------------------------------------------------------------------- Cash Flow from Financing Activities: Proceeds from new debt 11,794 10,045 5,776 Payments to settle debt (8,741) (10,735) (4,184) Short-term borrowings less than 90 days -- net (5,247) 4,199 2,676 Proceeds from preferred stock 1,091 -- -- Common stock transactions net 122 (90) 67 Payments to purchase and retire common stock -- -- (196) Cash dividends paid (933) (2,765) (2,771) - ------------------------------------------------------------------------------- Net cash (used in) provided from financing activities (1,914) 654 1,368 - ------------------------------------------------------------------------------- Effect of exchange rate changes on cash and cash equivalents (796) (549) (315) - ------------------------------------------------------------------------------- Net change in cash and cash equivalents 1,415 501 92 - ------------------------------------------------------------------------------- Cash and cash equivalents at January 1 4,446 3,945 3,853 - ------------------------------------------------------------------------------- Cash and cash equivalents at December 31 $ 5,861 $ 4,446 $ 3,945 - ------------------------------------------------------------------------------- Supplemental Data: Cash paid during the year for: Income taxes $ 452 $ 1,297 $ 2,292 Interest $ 2,410 $ 3,132 $ 2,617 - ------------------------------------------------------------------------------- The notes on pages 36 through 62 are an integral part of this statement. Management Discussion International Business Machines Corporation and Subsidiary Companies 35
(Dollars in millions) Preferred Common Retained Translation Treasury Stock Stock Earnings Adjustments Stock Total 1991 Stockholders' Equity, January 1, 1991 $ -- $ 6,357 $ 32,912 $ 3,309 $ (25) $ 42,553 Net loss (2,861) (2,861) Cash dividends declared--common stock (2,771) (2,771) Common stock issued under employee plans (1,857,904 shares) 172 172 Purchases (7,306,058 shares) and sales (7,201,997 shares) of treasury stock under employee plans--net (125) (6) (131) Common stock purchased and retired (2,127,400 shares) (24) (172) (196) Tax reductions--employee plans 26 26 Translation adjustments (113) (113) - ------------------------------------------------------------------------------------------------------------ Stockholders' Equity, December 31, 1991 -- 6,531 26,983 3,196 (31) 36,679 1992 Net loss (4,965) (4,965) Cash dividends declared--common stock (2,765) (2,765) Common stock issued under employee plans (442,581 shares) 26 26 Purchases (8,097,681 shares) and sales (8,073,124 shares) of treasury stock under employee plans--net (129) 6 (123) Tax reductions--employee plans 6 6 Translation adjustments (1,234) (1,234) - ------------------------------------------------------------------------------------------------------------ Stockholders' Equity, December 31, 1992 -- 6,563 19,124 1,962 (25) 27,624 1993 Net loss (8,101) (8,101) Cash dividends declared--common stock (905) (905) Cash dividends declared--preferred stock (47) (47) Preferred stock issued (11,250,000 shares) 1,091 1,091 Common stock issued under employee plans (3,765,854 shares) 159 159 Common stock issued to U.S. pension plan fund (5,828,970 shares) 258 258 Purchases (6,099,023 shares) and sales (6,452,566 shares) of treasury stock under employee plans--net (62) 25 (37) Translation adjustments (304) (304) - ------------------------------------------------------------------------------------------------------------ Stockholders' Equity, December 31, 1993 $ 1,091 $ 6,980 $ 10,009 $ 1,658 $ -- $ 19,738 - ------------------------------------------------------------------------------------------------------------ The notes on pages 36 through 62 are an integral part of this statement.
International Business Machines Corporation and Subsidiary Companies 36 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 percent ownership), are accounted for by the equity method. Other investments are accounted for by the cost method. Revenue Revenue is recognized from hardware sales or sales-type leases when the product is shipped; from software when the program is shipped, as monthly license fees accrue, or over the term of the post-contract customer support arrangement; from maintenance and services over the contractual period, or as the services are performed; from rentals under operating leases in the month in which they accrue; and from financing at level rates of return over the term of the lease or receivable. Reserves are established to provide for instances where customer acceptance does not take place and for other potential price adjustments. Selling Expenses Selling expenses are charged against income as incurred. Income Taxes Income tax expense is based on reported earnings before income taxes. Deferred income taxes reflect the impact of temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes. In accordance with Statement of Financial Accounting Standards (SFAS) 109, these deferred taxes are measured by applying currently enacted tax laws. In years prior to 1992, deferred taxes were accounted for in accordance with SFAS 96. Translation of Non-U.S. Currency Amounts For non-U.S. subsidiaries that operate in a local currency environment, assets and liabilities 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. For non-U.S. subsidiaries and branches that operate in U.S. dollars or whose economic environment is highly inflationary, inventories and plant, rental machines and other property are translated at approximate 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 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. Cash Equivalents All highly liquid investments with a maturity of three months or less at date of purchase are considered to be cash equivalents. Notes to Consolidated Financial Statements International Business Machines Corporation and Subsidiary Companies 37 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 generally 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 generally over periods from two to six years. Periodic reviews are performed to ensure that the unamortized program costs remain recoverable over future revenues. Costs to support or service licensed programs are charged against income as incurred, or when related revenue is recognized, whichever occurs first. Retirement Plans and Nonpension Postretirement Benefits Current service costs of retirement plans and postretirement healthcare and life insurance benefits are accrued in the period. Prior service costs resulting from amendments to the plans are amortized over the average remaining service period of employees expected to receive benefits. Goodwill Goodwill is charged to earnings on a straight-line basis over the periods estimated to be benefited, currently not exceeding five years. Common Stock Common stock refers to the $1.25 par value capital stock, as designated in the company's Certificate of Incorporation. Earnings (loss) per common share amounts are computed by dividing earnings (loss) after deduction of preferred stock dividends by the average number of common shares outstanding. b Accounting Changes In the fourth quarter of 1993, the company implemented Statement of Financial Accounting Standards (SFAS) 112, "Employers' Accounting for Postemployment Benefits," effective as of January 1, 1993. While the company has generally been in compliance with the standard, a charge was taken to recognize the cost of certain benefits which are primarily healthcare for employees on disability. The company's previous practice was to recognize these costs as incurred. The company's practice is to accrue the cost of benefits when it becomes probable that such benefits will be paid and the amounts can be estimated. The cost of benefits provided to other former and inactive employees has been recognized on an accrual basis and are not affected by this change. The cumulative effect of adopting this statement resulted in a one-time charge of $114 million (net of approximately $61 million of income tax benefits). The ongoing annual impact of this change is not expected to have a material effect on future earnings. Prior years' consolidated financial statements have not been restated to reflect this change. Notes to Consolidated Financial Statements International Business Machines Corporation and Subsidiary Companies 38 In 1992, the company implemented SFAS 109, "Accounting for Income Taxes." This statement superseded the previous accounting standard for income taxes, SFAS 96, which the company adopted in 1988. Under SFAS 109, the company recognizes deferred tax assets if it is more likely than not that a benefit will be realized. The cumulative effect of this accounting change, which resulted in recognizing previously unrecognized tax benefits for years prior to January 1, 1992, increased net earnings for 1992 by $1,900 million, or $3.33 per common share. Income taxes for 1991 have not been restated for this change. Further discussion is included on pages 42 through 44. The company implemented SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," on the immediate recognition basis effective as of January 1, 1991. This statement requires that the cost of these benefits, which are primarily healthcare benefits, be recognized in the financial statements during the employee's active working career. The company's previous practice was to accrue these costs principally at retirement. Further discussion is included on pages 54 through 56. In May 1993, the Financial Accounting Standards Board issued SFAS 114, "Accounting by Creditors for Impairment of a Loan." Under SFAS 114, creditors should evaluate the collectibility of both contractual interest and principal of all receivables when assessing the need for a loss accrual. Additionally, SFAS 114 requires creditors to measure all loans that are restructured in a troubled debt restructuring involving a modification of terms to reflect the time value of money. This statement is effective for fiscal years beginning after December 15, 1994. In May 1993, the Financial Accounting Standards Board issued SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities," which prescribes the accounting for debt and equity securities held as assets. This statement is effective for fiscal years beginning after December 15, 1993. It is expected that the implementation of these statements will not result in a material charge to the results of operations in the year of adoption. c Marketable Securities At December 31: (Dollars in millions) 1993 1992 U.S. government securities $ 702 $ 698 Time deposits and other bank obligations 515 435 Non-U.S. government securities and other fixed-term obligations 55 70 Total $ 1,272 $ 1,203 Market value $ 1,272 $ 1,203 Notes to Consolidated Financial Statements International Business Machines Corporation and Subsidiary Companies 39 d Inventories At December 31: (Dollars in millions) 1993 1992 Current inventories: Finished goods $ 1,906 $ 2,100 Work in process 5,539 6,115 Raw materials 120 170 Total current inventories 7,565 8,385 Work in process included in plant, rental machines and other property 715 805 Total $ 8,280 $ 9,190 e Plant, Rental Machines and Other Property At December 31: (Dollars in millions) 1993 1992 Land and land improvements $ 1,422 $ 1,477 Buildings 13,314 13,839 Plant, laboratory and office equipment 29,829 34,500 44,565 49,816 Less: Accumulated depreciation 28,576 29,789 15,989 20,027 Rental machines and parts 2,939 2,970 Less: Accumulated depreciation 1,407 1,402 1,532 1,568 Total $ 17,521 $ 21,595 Notes to Consolidated Financial Statements International Business Machines Corporation and Subsidiary Companies 40 f Investments and Sundry Assets At December 31: (Dollars in millions) 1993 1992 Net investment in sales-type leases* $ 17,518 $ 20,875 Less: Current portion (net) 6,428 7,405 11,090 13,470 Deferred taxes 4,521 2,886 Prepaid pension cost 532 905 Installment payment receivables 703 683 Investments in business alliances 650 691 Goodwill, less accumulated amortization (1993, $462; 1992, $288) 646 274 Other investments and sundry assets 2,545 2,390 Total $ 20,687 $ 21,299 *These leases relate to IBM equipment and are for terms generally ranging from three to five years. Net investment in sales-type leases includes unguaranteed residual values of approximately $760 million and $1,110 million at December 31, 1993 and 1992, and is reflected net of unearned income at these dates of approximately $3,100 million and $4,000 million, respectively. Scheduled maturities of minimum lease payments outstanding at December 31, 1993, expressed as a percentage of the total, are approximately as follows: 1994, 39 percent; 1995, 31 percent; 1996, 19 percent; 1997, 8 percent; 1998 and after, 3 percent. g Short-Term Debt At December 31: (Dollars in millions) 1993 1992 Commercial paper $ 3,735 $ 7,869 Short-term loans 4,356 5,342 Long-term debt: Current maturities 4,006 3,256 Total $ 12,097 $ 16,467 The weighted average interest rates for commercial paper at December 31, 1993 and 1992, were 3.9 percent and 3.5 percent, respectively. The weighted average interest rates for short-term loans at December 31, 1993 and 1992, were 5.9 percent and 13.3 percent, respectively. Notes to Consolidated Financial Statements International Business Machines Corporation and Subsidiary Companies 41 h Long-Term Debt At December 31: (Dollars in millions) 1993 1992 Maturities U.S. Dollars: Debentures: 71/2% 2013 $ 550 $ 83/8% 2019 750 750 Notes: 53/4% to 75/8% 1994-2002 4,267 3,196 73/4% to 87/8% 1994-1997 102 646 9% to 101/4% 1994-2000 692 694 Medium-term note program: 3.4% to 19.0% 1994-2008 1,734 1,429 Other U.S. dollars: 3.9% to 19.8% 1994-2012 1,765 1,189 9,860 7,904 Other Currencies (average interest rate at December 31, 1993, in parentheses): Japanese yen (5.0%) 1994-2014 5,057 3,446 Swiss francs (5.9%) 1994-1996 699 833 European currency units (9.1%) 1994-1995 1,044 1,248 Canadian dollars (10.5%) 1994-1997 852 1,044 French francs (7.6%) 1994-2001 809 645 Australian dollars (8.2%) 1994-1996 253 326 Other (10.1%) 1994-2017 696 675 19,270 16,121 Less: Net unamortized discount 19 12 19,251 16,109 Less: Current maturities 4,006 3,256 Total $ 15,245 $ 12,853 Annual maturity and sinking fund requirements in millions of dollars on long-term debt outstanding at December 31, 1993, are as follows: 1994, $4,006; 1995, $3,978; 1996, $2,703; 1997, $2,288; 1998, $2,098; 1999 and beyond, $4,197. I Preferred Stock On June 7, 1993, the company issued 11.25 million shares of Series A Preferred Stock, represented by 45 million depositary shares. The preferred stock is not convertible into, or exchangeable for, shares of any other class or classes of stock of the company. The preferred stock will have priority as to dividends over the company's common stock. Dividends on the preferred stock are cumulative and accrue from the date of original issue at a rate of $7.50 per share (equivalent to $1.875 per depositary share). The preferred stock is not redeemable prior to July 1, 2001. Thereafter, the company, at its option, may redeem the preferred stock, in Notes to Consolidated Financial Statements International Business Machines Corporation and Subsidiary Companies 42 whole or in part, at any time at a redemption price per share of $100 ($25 per depositary share), plus accrued and unpaid dividends. Upon any dissolution, liquidation or winding up of the affairs of the company, holders of the preferred stock will be entitled to receive $100 per share ($25 per depositary share) plus accrued and unpaid dividends before any distribution to holders of the company's common stock. J Taxes (Dollars in millions) 1993 1992 1991 (Loss) earnings before income taxes: U.S. operations $ (6,073) $ (7,678) $ (3,379) Non-U.S. operations (2,724) (1,348) 3,497 $ (8,797) $ (9,026) $ 118 The (benefit) provision for income taxes by geographic operations is as follows: U.S. operations $ (505) $ (2,179) $ (857) Non-U.S. operations (305) 18 1,573 Total (benefit) provision for income taxes $ (810) $ (2,161) $716 The components of the (benefit) provision for income taxes by taxing jurisdiction are as follows: U.S. federal: Current $ (4) $ (115) $ 226 Deferred (890) (2,390) (799) Net deferred investment tax credits (51) (54) (68) (945) (2,559) (641) U.S. state and local: Current 26 (14) 29 Deferred 23 3 (139) 49 (11) (110) Non-U.S.: Current 554 1,378 1,787 Deferred (468) (969) (320) 86 409 1,467 Total (benefit) provision for income taxes $ (810) $ (2,161) $716 Social security, real estate, personal property, and other taxes 2,614 3,067 3,082 Total taxes $ 1,804 $ 906 $ 3,798 The impact of tax law changes on deferred tax assets and liabilities in 1993 was a benefit of $170 million, of which $71 million related to the U.S. and $99 million related to the non-U.S. In 1992, the company implemented Statement of Financial Accounting Standards (SFAS) 109, "Accounting for Income Taxes." This statement superseded the previous accounting standard for income taxes, SFAS 96, Notes to Consolidated Financial Statements International Business Machines Corporation and Subsidiary Companies 43 which the company adopted in 1988. Both SFAS 96 and SFAS 109 require the use of the liability method for recording deferred income taxes. However, under SFAS 96, deferred tax assets could not be recognized unless they offset reversals of deferred tax liabilities or could be recovered as income tax refunds through existing loss carryback provisions. Under SFAS 109, the company recognizes deferred tax assets if it is more likely than not that a benefit will be realized. The cumulative effect of this accounting change, which resulted in recognizing previously unrecognized tax benefits for years prior to January 1, 1992, increased net earnings for 1992 by $1,900 million, or $3.33 per common share. Income taxes for 1991 have not been restated for this change. Deferred income taxes reflect the impact of temporary differences between the amount of assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes. The significant components of deferred tax assets and liabilities included on the balance sheet were as follows: (Dollars in millions) 1993 1992 Deferred Tax Assets Restructuring charges $ 5,253 $ 3,882 Retiree medical benefits 1,961 1,691 Capitalized R&D 1,739 0 U.S. federal tax loss carryforwards 1,093 0 Foreign tax loss carryforwards 989 430 Foreign tax credits 885 1,490 Alternative minimum tax credits 729 663 Inventory 621 697 State and local tax loss carryforwards 566 384 Doubtful accounts 480 410 General business credits 452 438 Intracompany sales and services 440 390 Depreciation 234 421 Software costs deferred 186 285 Retirement benefits 124 212 Other 3,435 2,622 Gross deferred tax assets $ 19,187 $ 14,015 Less: Valuation allowance 5,035 1,976 Total deferred tax assets $ 14,152 $ 12,039 Deferred Tax Liabilities Sales-type leases $ 3,118 $ 3,785 Software costs deferred 1,824 1,659 Depreciation 1,537 1,541 Retirement benefits 1,069 941 Other 1,379 1,103 Gross deferred tax liabilities $ 8,927 $ 9,029 Notes to Consolidated Financial Statements International Business Machines Corporation and Subsidiary Companies 44 The valuation allowance applies to U.S. federal tax credit and net operating loss carryforwards, state and local net deferred tax assets and net operating loss carryforwards, and net operating losses in certain foreign jurisdictions that may expire before the company can utilize them. The net change in the total valuation allowance for the year ended December 31, 1993, was an increase of $3,059 million and for the year ended December 31, 1992, was an increase of $1,647 million. The estimated reversal periods for the largest deductible temporary differences are: Restructuring 2 years; Retiree Medical 1-30 years. The consolidated effective income tax rate was (9) percent in 1993, (24) percent in 1992, and 607 percent in 1991. A reconciliation of the company's effective tax rate to the statutory U.S. federal tax rate is as follows: Year ended December 31 1993 1992 1991 Statutory rate (35)% (34)% 34% U.S. valuation allowance related to restructuring 20 6 332 Foreign tax differential 7 5 325 State and local, net (62) Other (1) (1) (22) Effective rate (9)% (24)% 607% For tax return purposes, the company has available tax credit carryforwards of approximately $2,432 million, of which $48 million expire in 1995, $461 million expire in 1996, $712 million expire in 1998, and the remainder thereafter. No tax credit carryforwards expire in 1997. The company also has federal, state and local, and foreign tax loss carryforwards, the tax effect of which is $2,648 million. Most of these carryforwards are available for fifteen years. Undistributed earnings of non-U.S. subsidiaries included in consolidated retained earnings amounted to $10,915 million at December 31, 1993, $12,182 million at December 31, 1992, and $13,991 million at December 31, 1991. These earnings, which reflect full provision for non-U.S. income taxes, are indefinitely reinvested in non-U.S. operations or will be remitted substantially free of additional tax. Accordingly, no material provision has been made for taxes that might be payable upon remittance of such earnings nor is it practicable to determine the amount of this liability. Notes to Consolidated Financial Statements International Business Machines Corporation and Subsidiary Companies 45 K Research, Development and Engineering Research, development and engineering expenses amounted to $ 5,558 million in 1993, $6,522 million in 1992, and $6,644 million in 1991. Included in these amounts were expenditures of $4,431 million in 1993, $5,083 million in 1992, and $5,001 million in 1991 for a broad program of research and development activities covering basic scientific research in a variety of fields and the application of scientific advances to the development of new and improved products and their uses. Of these amounts, software-related activities were $1,097 million, $1,161 million, and $994 million in 1993, 1992, and 1991, respectively. In addition, expenditures for product-related engineering amounted to $1,127 million, $1,439 million, and $1,643 million for the same three years. L Restructuring Actions The company has taken a series of actions since 1985 to streamline and reduce resources utilized in the business. During 1993 and 1992, the company recorded restructuring charges of $8.9 billion before taxes ($8.0 billion after taxes or $14.02 per common share) and $11.6 billion before taxes ($8.3 billion after taxes or $14.51 per common share), respectively. These charges are summarized in the table below: (Dollars in billions) Reserve to be Utilized in Charges to Operations Charges Future 1993 1992 Total Utilized Periods Work-force-related $ 6.0 $ 5.4 $ 11.4 $ 6.9 $ 4.5 Manufacturing capacity 1.4 4.7 6.1 2.2 3.9 Excess space 1.5 .8 2.3 .4 1.9 Other .7 .7 .7 Total restructuring charges $ 8.9 $ 11.6 $ 20.5 $ 10.2 $ 10.3* * $5.1 billion included in Other accrued expenses and liabilities, $1.6 billion included in Other liabilities, and $3.6 billion included in Plant, Rental Machines and Other Property in the Consolidated Statement of Financial Position at December 31, 1993. During 1991, the company also recorded a restructuring charge of $3.7 billion before taxes ($2.9 billion after taxes or $5.03 per common share). The actions contemplated in the 1991 charge were associated with work force reductions and relocations, facility consolidations, and other related items, which have been essentially completed. The company records restructuring charges against operations and provides a reserve based upon the best information available at the time the decision is made to undertake the restructuring action. The reserves are subsequently utilized when specific restructuring criteria are met, indicating the planned restructuring action has occurred. Work-force-related reserves are considered utilized at payment for either termination or acceptance of other contractual arrangements. Manufacturing capacity reserves are considered utilized based on execution of planned actions at each affected location. The reserve for excess space is utilized when the remaining lease obligations are settled, or the space has been vacated and subleased. Notes to Consolidated Financial Statements International Business Machines Corporation and Subsidiary Companies 46 It is the company's policy to continue to charge normal depreciation, rent and other operating costs relating to manufacturing capacity and excess space to the ongoing cost of operations while they remain in business use. The $11.4 billion of work-force-related reserves taken in 1992 and 1993 contemplated worldwide staff reductions of approximately 110,000 people. Through 1993 approximately 75,000 people have left the company under these programs. Although work-force-related restructuring actions through 1993 have affected all parts of the company worldwide, the reductions have been more heavily weighted toward positions in the United States. Remaining staff reductions are expected to occur primarily during 1994 and be more heavily weighted toward positions outside the United States. Included in the 1993 charge, and considered utilized, is $1.4 billion relating to the company's pension and other postretirement plans, referred to as a "curtailment loss." This loss is the recognition in the current period of actuarial charges that otherwise might have been amortized over future periods. Cash outlays associated with unutilized work-force-related reserves are expected to be expended substantially in 1994 and 1995, except for the curtailment portion of the charge which will be expended as required for funding appropriate pension and other postretirement plans in future years. The required manufacturing capacity charges will not involve substantial cash outlays. Cash requirements related to excess space charges are expected to be expended as follows: $575 million in 1994, $325 million in 1995, $240 million in 1996, and $700 million in 1997 and beyond. M Interest on Debt Interest on borrowings of the company and its subsidiaries amounted to $2,298 million in 1993, $2,698 million in 1992, and $2,667 million in 1991. Of these amounts, $46 million in 1993, $101 million in 1992, and $143 million in 1991 were capitalized. The remainder was charged to cost of rentals and financing, and interest expense. N Other Liabilities Other liabilities consists principally of accruals for nonpension postretirement benefits, indemnity and retirement plan reserves for non-U.S. employees, and restructuring charges. O Environmental The company continues to participate in environmental assessments and cleanups at a number of locations, including operating facilities, previously owned facilities, Superfund and other waste sites. The company accrues for all known environmental liabilities for remediation cost when a cleanup program becomes probable and costs can be reasonably estimated. The amounts accrued were $77 million and $36 million at December 31, 1993 and 1992, respectively. Notes to Consolidated Financial Statements International Business Machines Corporation and Subsidiary Companies 47 The amounts accrued do not cover sites which are in the preliminary stages of investigation where neither the company's percentage of responsibility nor the extent of cleanup required have been identified. It also excludes the cost of internal environmental protection programs which are primarily preventive and abatement related. While the company has received and expects to receive insurance recoveries which offset a portion of the company's cost, the accrual reflects gross estimated liability. Estimated environmental costs are not expected to materially impact the financial position or results of the company's operations in future periods. However, environmental cleanup periods are protracted in length and earnings in future periods are subject to changes in business conditions. P Customer Financing The primary focus of IBM's worldwide customer financing offerings is to support customers in their acquisitions of IBM's products and services. This support is provided in certain countries through financing subsidiaries, and from operations in those countries where the company does not maintain a separate financing subsidiary, such as Canada, Germany, Italy, and Japan. For purposes of this note, the results of customer financing in all countries are presented in a consistent manner. Total assets for financing subsidiaries at December 31, 1993, were $14,661 million, compared to $16,205 million at year-end 1992. These assets were financed by $9,728 million of debt at December 31, 1993, compared to $11,288 million at December 31, 1992. Total financing and other income from financing subsidiaries was $2,875 million, $2,701 million, and $2,250 million for 1993, 1992, and 1991, respectively. Net earnings from financing subsidiaries for 1993, 1992, and 1991 were $322 million, $286 million, and $231 million, respectively. These wholly owned subsidiaries are consolidated in the company's financial statements, and are reflected in the following financial schedules in addition to the financial results of those countries that do not have a financing subsidiary. For comparability purposes, the following schedules reflect the financial position, results of operations, and cash flows for customer financing in comparison to the company's consolidated results with customer financing results reflected on the equity basis. This involves presenting the investment and related return from customer financing as reflected in the company's consolidated financial statements, within a single line item. For the statement of financial position, customer financing's assets net of related liabilities, and after elimination of applicable intracompany transactions, are shown separately as a single line item, investment in customer financing. Eliminations primarily pertain to internal mark-ups to fair value on equipment held on operating leases, and the normal elimination of intracompany payables and receivables. With respect to the statement of earnings, net earnings for customer financing before applicable taxes and after elimination of related intracompany transactions are included in the line description, Other income. For the statement of cash flows, certain cash flow activities are reclassified to be consistent with the classification of such activities reflected in the company's Consolidated Statement of Cash Flows. Such reclassifications primarily pertain to cash flow activity related to financing receivables. Notes to Consolidated Financial Statements International Business Machines Corporation and Subsidiary Companies 48 Because customer financing is different in nature from the company's manufacturing and services businesses, management believes that the aforementioned type of comparative disclosure enhances an understanding and analysis of the consolidated financial statements. Statement Of Financial Position (Dollars in millions) IBM with Customer At December 31: Customer Financing on an Financing Equity Basis 1993 1992 1993 1992 Assets: Cash and cash equivalents $ 2,096 $ 1,103 $ 3,765 $ 3,343 Notes and accounts receivable 8,177 8,674 Net investment in sales-type leases 17,518 20,875 Working capital financing receivables 1,898 1,581 Loans receivable 3,615 3,999 Inventories 143 138 7,466 8,263 Plant, rental machines and other property, net of accum. depreciation 2,627 2,910 15,788 19,962 Other assets 2,551 1,765 16,679 15,399 Investment in customer financing 5,524 5,417 Total Assets $ 30,448 $ 32,371 $ 57,399 $ 61,058 Liabilities and Stockholders' Equity: Taxes and accrued expenses $ 2,592 $ 3,249 $ 14,895 $ 13,705 Other liabilities 3,825 3,413 16,555 12,806 Debt 21,131 22,397 6,211 6,923 27,548 29,059 37,661 33,434 Stockholders' equity/invested capital 2,900 3,312 19,738 27,624 Total Liabilities and Stockholders' Equity $ 30,448 $ 32,371 $ 57,399 $ 61,058 Notes to Consolidated Financial Statements International Business Machines Corporation and Subsidiary Companies 49 Statement Of Earnings (Dollars in millions) IBM with Customer For the year ended December 31: Customer Financing on an Financing Equity Basis 1993 1992 1993 1992 Finance and Other Income: Finance income $ 2,485 $ 2,699 $ $ Rental income, net of depreciation 285 337 692 962 Sales 1,391 1,384 57,483 58,646 Other income 850 505 1,184 955 Total Finance and Other Income 5,011 4,925 59,359 60,563 Interest and other cost and expenses 3,994 3,947 68,156 69,589 Net Earnings (Loss) Before Income Taxes 1,017 978 (8,797) (9,026) Provision (benefit) for income taxes 443 406 (810) (2,161) Net earnings (loss) before changes in accounting principles 574 572 (7,987) (6,865) Effects of changes in accounting principles (114) 1,900 Net Earnings (Loss) $ 574 $ 572 $ (8,101) $ (4,965) Statement Of Cash Flows (Dollars in millions) IBM with Customer For the year ended December 31: Customer Financing on an Financing Equity Basis 1993 1992 1993 1992 Net cash provided from operating activities $ 3,004 $ 3,414 $ 2,044 $ 2,864 Net cash used in investing activities (284) (4,176) (639) (1,706) Net cash (used in) provided from financing activities (1,680) 1,094 (234) (440) Effect of exchange rate changes on cash and cash equivalents (47) (21) (749) (528) Net change in cash and cash equivalents 993 311 422 190 Cash and cash equivalents at January 1 1,103 792 3,343 3,153 Cash and cash equivalents at December 31 $ 2,096 $ 1,103 $ 3,765 $ 3,343 Notes to Consolidated Financial Statements International Business Machines Corporation and Subsidiary Companies 50 Customer financing debt at December 31, 1993, consisted of borrowings directly with external financial institutions of $17,562 million and intracompany borrowings of $3,569 million at market rates of interest. Intracompany borrowings are made pursuant to loan agreements between the parties. Other liabilities represents amounts due to affiliates, and primarily consists of trade payables arising from purchases of equipment for term leases, installment payment agreements, and software licenses, with payment terms comparable to those offered to IBM's external customers. The earnings yielded a return on average invested capital of 18.4 percent in 1993, compared to 17.1 percent for the same 1992 period. 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 provision for income taxes for customer financing is based on the statutory income tax rate of each country, calculated on a separate return basis. Q Rental Expense and Lease Commitments Rental expense, including amounts charged to inventories and fixed assets, excluding amounts charged to restructuring, were $1,686 million in 1993, $2,108 million in 1992, and $2,056 million in 1991. Gross minimum rental commitments, in millions of dollars, under non-cancellable leases for 1994, and thereafter, are as follows: 1994, $1,395; 1995, $1,158; 1996, $1,053; 1997, $858; 1998, $864; and after 1998, $3,256. Included in these amounts are leases for vacant space that the company had reserved for in restructuring charges. These lease commitments, valued in millions of dollars, are: 1994, $288; 1995, $267; 1996, $209; 1997, $183; 1998, $174; and after 1998, $432. The company has entered into sublease commitments, but the amounts were insignificant at December 31, 1993. These leases are principally for the rental of office premises. R Long-Term Performance Plan The IBM 1989 Long-Term Performance Plan provides for incentive awards to be made to officers and other key employees. The plan is administered by the Executive Compensation and Management Resources Committee of the Board of Directors. The Committee determines the type of award to be granted, which may include stock, a stock option, a Stock Appreciation Right (SAR), cash, or any combination thereof. The number of shares made available for granting in the year was .85 percent of IBM's projected outstanding common stock as of December 31, 1993. Prior to 1989, stock options were issued under the IBM 1986 and predecessor Stock Option Plans. Notes to Consolidated Financial Statements International Business Machines Corporation and Subsidiary Companies 51 Options allow the purchase of IBM's common stock at 100 percent of the market price on the date of grant and have a maximum duration of 10 years. Payment by the optionee upon exercise of an option may be made using IBM stock as well as cash. SARs offer eligible optionees the alternative of electing not to exercise the related stock option, but to receive payment in cash and/or stock, equivalent to the difference between the option price and the average market price of IBM stock on the date of exercising the right. The following table summarizes option activity during 1993 and 1992: Number of shares under option 1993 1992 Balance at January 1 35,621,963 27,382,266 Options granted 13,744,772 9,723,804 Options exercised -- (461,202) Options terminated (20,106,011) (980,494) Options cancelled - SARs exercised -- (42,411) Balance at December 31 29,260,724 35,621,963 Exercisable at December 31 14,636,324 21,372,943 In April 1993, the committee of the Board of Directors then responsible for administering the plan, the Nominating and Executive Compensation Committee, approved management's plan to allow optionees, other than executive officers, to voluntarily forfeit all of their existing IBM stock options, granted from 1984 through 1992, in exchange for a fewer number of new stock option grants. Under this program, 18,054,615 options, at average prices ranging from $66.94 to $159.50, were terminated and 7,405,090 new options at a price of $47.88 were granted. There were no options exercised in 1993. The options exercised in 1992 were at an average option price of $62.25 per share. The shares under option at December 31, 1993, were at option prices ranging from $43.00 to $159.50 per share. The shares under option at December 31, 1992, were at option prices ranging from $50.37 to $159.50 per share. There were 6,011,858 and 1,362,687 unused shares carried forward and made available for granting in the subsequent year as of December 31, 1993 and 1992, respectively. S Stock Purchase Plan The IBM Employees Stock Purchase Plan (the "Plan") enables employees who are not participants in IBM's stock option programs to purchase IBM common stock through payroll deductions of up to 10 percent of eligible compensation. The price an employee pays for a share of stock is 85 percent of the average market price on the date the employee has accumulated enough money to buy a share. Notes to Consolidated Financial Statements International Business Machines Corporation and Subsidiary Companies 52 In July 1993, the Board of Directors approved management's plan to issue, instead of purchase on the open market, stock to be sold to employees under the Plan. During 1993, employees purchased 9,796,460 shares, including 6,451,066 treasury shares, for which $419 million was paid to IBM. There were 21,702,501 reserved unissued shares available for purchase under the Plan at December 31, 1993. T Retirement Plans The company and its subsidiaries have retirement plans covering substantially all employees. The total cost of all plans for 1993, 1992, and 1991 was $1,525 million, $838 million, and $527 million, respectively. Net periodic pension cost of the U.S. retirement plan and selected non-U.S. plans for the years ended December 31 included the following components: U.S. Plan Non-U.S. Plans 1993 1992* 1991* 1993 1992 1991 Expected long-term rate of return on plan assets 9.5% 9.5% 9.0% 5-10% 5-12% 5-12% (Dollars in millions) Service cost: Benefits earned during the period $ 571 $ 586 $ 569 $ 576 $ 603 $ 664 Termination incentive expenses 263 355 122 -- -- -- Interest cost on the projected benefit obligation 1,909 1,671 1,488 1,064 1,060 924 Return on plan assets: Actual (3,990) (1,216) (4,044) (3,036) (998) (1,269) Deferred 1,605 (1,047) 1,961 1,891 (166) 210 Net amortizations (62) (88) (162) 12 24 3 Curtailment losses 431 -- -- 215 -- -- Net periodic pension cost $ 727 $ 261 $ (66) $ 722 $ 523 $ 532 Total net periodic pension cost for all non-U.S. plans $ 798 $ 577 $ 593 * Restated to conform with 1993 presentation. Annual cost is determined using the Projected Unit Credit actuarial method. Prior service cost is amortized on a straight-line basis over the average remaining service period of employees expected to receive benefits. An assumption is made for modified career average plans such that the average earnings base period will be updated to the years prior to retirement. Notes to Consolidated Financial Statements International Business Machines Corporation and Subsidiary Companies 53 Termination incentive expenses represent the cost of special retirement benefits offered to employees for a short period of time in exchange for voluntary termination of service. Curtailment losses reflect the significant reductions in the expected years of future service caused by 1993 termination programs and represent the immediate recognition of associated prior service cost and a portion of previously unrecognized actuarial losses. In the Consolidated Statement of Operations, the curtailment losses and termination expenses, referred to above, are included in restructuring charges. The table below provides information on the status of the U.S. retirement plan, and selected non-U.S. plans that represent approximately 97 percent of the total non-U.S. accumulated benefit obligations. The funded status at December 31 was as follows: U.S. Plan Non-U.S. Plans 1993 1992 1993 1992 Assumptions: Discount rate 7.25% 8.5% 5-9.25% 5-10% Long-term rate of compensation increase 5.0% 5.0% 2.8-6.6% 3-7.5% (Dollars in millions) Actuarial present value of benefit obligations: Vested benefit obligation $ (24,736) $ (19,550) $ (12,342) $ (11,205) Accumulated benefit obligation $ (26,325) $ (19,588) $ (13,544) $ (12,508) Projected benefit obligation $ (29,024) $ (22,700) $ (16,129) $ (15,603) Plan assets at fair value 28,198 25,196 16,159 13,682 Projected benefit obligation (in excess of) less than plan assets (826) 2,496 30 (1,921) Unrecognized net loss (gain) 1,550 (1,032) (1,184) 649 Unrecognized prior service cost 1,282 1,782 304 333 Unrecognized net asset established at January 1, 1986 (1,474) (2,341) (145) (132) Prepaid (accrued) pension cost recognized in the statement of financial position $ 532 $ 905 $ (995) $ (1,071) The U.S. plan's vested benefit obligation, accumulated benefit obligation and projected benefit obligation increased in 1993 primarily as a result of a change in the discount rate and the curtailment. The projected benefit obligation increased $3,938 million from the change in discount rate and $1,105 million as a result of the curtailment. It is the company's practice to fund amounts for pensions sufficient to meet the minimum requirements set forth in applicable employee benefit and tax laws, and such additional amounts as the company may determine Notes to Consolidated Financial Statements International Business Machines Corporation and Subsidiary Companies 54 to be appropriate from time to time. In July 1993, the Board of Directors authorized the issuance of up to 15 million shares of IBM common stock to be contributed to the U.S. Pension Plan Fund through 1994. There were 9,171,030 shares remaining of that authorization at December 31, 1993. The assets of the various plans include corporate equities, government securities, corporate debt securities, and income-producing real estate. U.S. Plan: U.S. regular, full-time, and part-time employees are covered by a noncontributory plan which is funded by company contributions to an irrevocable trust fund, which is held for the sole benefit of employees. Monthly retirement benefits generally represent the greater of a fixed amount per year of service, or a percent of career compensation. For plan purposes, effective April 1, 1993, annual compensation before January 1, 1994, is defined as the average annual compensation paid for the years 1989 through 1993. Benefits become vested upon the completion of five years of service. The company introduced plan amendments in 1991 including the elimination of all retirement age reduction factors for employees who retire with 30 or more years of service, and a new provision that provides additional income in a tax-deferred manner to employees at retirement. The number of individuals receiving benefits at December 31, 1993 and 1992, was 77,664 and 69,153, respectively. Non-U.S. Plans: Most subsidiaries and branches outside the United States have retirement plans covering substantially all employees, under which funds are deposited under various fiduciary-type arrangements, annuities are purchased under group contracts, or reserves are provided. Retirement benefits are based on years of service and the employee's compensation, generally during a fixed number of years immediately prior to retirement. The ranges of assumptions used for the non-U.S. plans reflect the different economic environments within the various countries. U Nonpension Postretirement Benefits The company and its U.S. subsidiaries have defined benefit postretirement plans that provide medical, dental, and life insurance for retirees and eligible dependents. In 1993, the company applied plan cost maximums to those who retired prior to January 1, 1992. These maximums will take effect beginning with the year 2001. Plan cost maximums were established in 1990 for those employees retiring after December 31, 1991. Effective January 1, 1991, the company and its subsidiaries implemented on the immediate recognition basis, Statement of Financial Accounting Standards (SFAS) 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." This statement requires that the cost of these benefits, which are primarily for healthcare, be recognized in the financial statements during the employee's active working career. The company's previous practice was to accrue these costs principally at retirement. The transition effect of adopting SFAS 106 on the immediate recognition basis, as of January 1, 1991, resulted in a charge of $2,263 million to 1991 earnings, net of approximately $350 million of income tax benefits. This charge includes a previously unrecognized accumulated postretirement benefit obligation of approximately $4.8 billion, offset by $2.2 billion related to plan assets and accruals under the company's previous accounting practice. This obligation was determined by application of the terms of medical, dental, and life insurance Notes to Consolidated Financial Statements International Business Machines Corporation and Subsidiary Companies 55 plans, including the effects of established maximums on covered costs, together with relevant actuarial assumptions and healthcare cost trend rates projected at annual rates ranging ratably from 14 percent in 1991 to 6 percent through the year 2007. The healthcare cost trend rate was 13 percent in 1993. The effect of a 1 percent annual increase in these assumed cost trend rates would increase the accumulated postretirement benefit obligation by approximately $70 million; the annual costs would not be materially affected. Net periodic postretirement benefit cost for the years ended December 31 included the following components: 1993 1992* 1991* Expected long-term rate of return on plan assets 9.5% 9.5% 9.0% (Dollars in millions) Service cost: Benefits attributed to service during the period $ 53 $ 78 $94 Termination incentive expenses -- 71 38 Interest cost on the accumulated postretirement benefit obligation 566 485 389 Return on plan assets: Actual (201) (67) (325) Deferred 84 (59) 198 Net amortizations and other 29 (61) -- Curtailment loss 732 -- -- Net periodic postretirement benefit cost $ 1,263 $ 447 $ 394 *Restated to conform with 1993 presentation. In the Consolidated Statement of Operations, the curtailment loss and termination expenses referred to above are included in restructuring charges. Notes to Consolidated Financial Statements International Business Machines Corporation and Subsidiary Companies 56 The table below provides information on the status of the plans. The funded status at December 31 was as follows: 1993 1992 Assumed discount rate 7.25% 8.5% (Dollars in millions) Accumulated postretirement benefit obligation: Retirees $ (5,761) $ (5,194) Fully eligible active plan participants (673) (739) Other active plan participants (927) (988) Total (7,361) (6,921) Plan assets at fair value 1,366 1,453 Accumulated postretirement benefit obligation in excess of plan assets (5,995) (5,468) Unrecognized net loss 1,431 1,098 Unrecognized prior service cost (828) 241 Accrued postretirement benefit cost recognized in the statement of financial position $ (5,392) $ (4,129) In 1993, the accumulated postretirement benefit obligation increased $830 million as a result of the change in the assumed discount rate and $675 million from the curtailment. The plan change allowing the company to limit the amount it contributes for providing retiree healthcare benefits reduced the accumulated postretirement benefit obligation $1,011 million. It is the company's practice to fund amounts for postretirement benefits with an independent trustee, as deemed appropriate from time to time. The plan assets include corporate equities and government securities. The accounting for the plan is based on the written plan. Certain of the company's non-U.S. subsidiaries have similar plans for retirees. However, most retirees outside the United States are covered by government-sponsored and administered programs, and the obligations and cost of these programs are not significant to the company. V Lines of Credit As part of the company's ongoing efforts toward greater centralization of its treasury activities and to ensure appropriate liquidity levels, in December 1993 the company entered into a $10.0 billion committed global credit facility with 81 banks worldwide. This global credit facility will replace most of the existing committed credit facilities and some of the uncommitted credit facilities currently in place throughout the world. Unused lines of credit from previously existing credit arrangements for those geographies which have not been replaced as of December 31, 1993, by the worldwide credit facility, were $5,707 million. Consequently, Notes to Consolidated Financial Statements International Business Machines Corporation and Subsidiary Companies 57 total available committed and uncommitted lines of credit at December 31, 1993, were $15,707 million, compared to $6,950 million at December 31, 1992. Interest rates on borrowings vary from country to country depending on local market conditions. W Sales and Securitization of Receivables During 1993, total cash proceeds from the sale and securitization of trade and financing receivables to investors were $6.8 billion, as part of the company's worldwide program of securitizing assets and improving its liquidity. Of the total proceeds of $6.8 billion, approximately $2.5 billion represents the net year-over-year increase in securitized receivables. During 1993, no material gain or loss resulted from these transactions. Recourse amounts associated with the aforementioned sales and securitization activities are expected to be minimal, and adequate reserves are in place to cover potential losses. Prepaid expenses and other current assets on the Consolidated Statement of Financial Position include $751 million of net assets that have been reclassified pending the sale of FSC, as discussed on page 30. X Financial Instruments In assessing the fair value of financial instruments, at December 31, 1993, the company has used a variety of methods and assumptions, which were based on estimates of market conditions and risks existing at that time. For certain instruments, including cash and cash equivalents, non-trade accounts payable and accruals, and short-term debt, it was assumed that the carrying amount approximated fair value for the majority of these instruments because of their short maturity. Quoted market prices or dealer quotes for the same or similar instrument were used for the majority of marketable securities, long-term investments and long-term debt. Other techniques, such as option pricing models, estimated discounted value of future cash flows, replacement cost, and termination cost, have been used to determine fair value for the remaining financial instruments. These values merely represent a general approximation of possible value and may never actually be realized. The estimated fair values of the company's financial instruments, both on and off the balance sheet, are summarized on the following page. Notes to Consolidated Financial Statements International Business Machines Corporation and Subsidiary Companies 58 At December 31, 1993 (Dollars in millions) Carrying Estimated Amount Fair Value Cash and cash equivalents $ 5,861 $ 5,861 Marketable securities 1,272 1,272 Non-trade receivables and loans 4,120 4,153 Long-term investments 179 178 Non-trade accounts payable and accruals (3,027) (2,889) Short-term debt (12,097) (12,096) Long-term debt (15,245) (15,840) Forward exchange contracts 2 (45) Option contracts 36 43 Interest rate and currency swap agreements (37) (147) Financial guarantees -- (749) Some of the foregoing financial instruments have off-balance-sheet risk. In the normal course of business, the company enters into a variety of forward contracts, options, and swaps in order to limit its exposure to loss resulting from adverse fluctuations in foreign currency exchange and interest rates. The company receives significant dividends and intracompany royalties from its non-U.S. subsidiaries. Due to the volatility of the currency markets, it is prudent to employ the use of financial hedging instruments to minimize the company's potential exposure on these cash flows. In addition, in order to raise funds on a more cost-effective basis, the company centrally borrows to meet the consolidated financing requirements of its subsidiaries. The central financing facility in turn provides local currency denominated debt to the individual subsidiaries via currency and interest rate swap agreements. These instruments are executed with credit-worthy financial institutions, and virtually all foreign currency contracts are denominated in currencies of major industrial countries. Gains and losses on these contracts serve as hedges in that they offset fluctuations that would otherwise impact the company's financial results. Costs associated with entering into such contracts are generally amortized over the life of the instruments and are not material to the company's financial results. In assessing financial instruments with off-balance-sheet risk, the following summary of contract or notional (face) amounts outstanding at year-end provides an indication of the extent of the company's involvement in such instruments. The company does not anticipate any material adverse effect on its financial position resulting from its involvement in these instruments, nor does it anticipate non-performance by any of its counterparties. (Dollars in millions) 1993 1992 Forward exchange contracts $ 320 $ 490 Option contracts 538 1,914 Interest rate and currency swap agreements 17,244 13,690 Notes to Consolidated Financial Statements International Business Machines Corporation and Subsidiary Companies 59 The company does not have any significant concentrations of credit risk. IBM has guaranteed certain loans and commitments of various ventures to which it is a party. Additionally, the company is contingently liable for certain receivables sold with recourse. These commitments, which in the aggregate are approximately $2 billion, are not expected to have a material adverse effect on the company's financial results. Y Segment Information IBM is in the business of helping customers solve problems through the use of advanced information technologies. The company operates primarily in the single industry segment that creates value by offering services, software, systems, products, and technologies. This segment represents more than 90 percent of consolidated revenue, operating profit, and identifiable assets. The following schedule shows revenue by classes of similar products or services within the information technology segment. Financial information by geographic area is summarized on pages 61 and 62. Revenue by Classes of Similar Products or Services (Dollars in millions) Consolidated U.S. Only 1993 1992+ 1991+ 1993 1992+ 1991+ Information technology: Processors* $ 10,071 $ 13,916 $ 14,954 $ 3,179 $ 4,818 $ 4,717 Personal systems* 9,728 7,887 8,505 4,417 3,033 3,210 Other workstations* 2,006 2,671 3,216 689 874 1,040 Storage* 5,122 6,259 7,184 2,101 2,554 2,825 Other peripherals* 2,262 3,026 3,294 971 1,244 1,424 Software 10,953 11,103 10,498 3,898 3,883 3,760 Maintenance 7,295 7,635 7,414 2,726 2,809 2,884 Services 9,711 7,352 5,582 5,100 3,546 2,697 Financing and other 5,568 4,674 4,119 2,622 1,872 1,870 Total $ 62,716 $ 64,523 $ 64,766 $ 25,703 $ 24,633 $ 24,427 + Reclassified to conform with 1993 presentation. * Hardware only, includes applicable rental revenue, excludes functions not embedded, software, and maintenance. For purposes of classifying similar information technology products, user programmable equipment having the capability of manipulating data arithmetically or logically and making calculations, in a manner directly addressable by the user through the operation of a stored program, has been classified as processors. Processors includes high-end and midrange products. Personal systems includes personal computers and RISC System/6000 products. Other workstations includes display-based terminals and consumer and financial systems. Other peripherals consists of advanced function printers, telecommunication devices, and revenue from the computer workstation printer product line sold in 1991 to Lexmark International, Inc. Notes to Consolidated Financial Statements International Business Machines Corporation and Subsidiary Companies 60 These hardware classes of products represent groupings that perform similar functions, as opposed to the complete spectrum of products associated with IBM's product divisions. Accordingly, they do not represent the full range of any division's offerings, which could include related peripherals, software, and maintenance. Software includes both applications and systems software. Maintenance consists of separately billed charges for maintenance. Services represent a wide range of service offerings including consulting, education, systems development, managed operations, and availability services. Financing and other is composed primarily of financing revenue and products and supplies not otherwise classified. Some products logically fit in more than one class and are assigned to a specific class based on a variety of factors. Over time, products tend to overlap, merge into, or split from existing classes as a result of changing technologies, market perceptions, and/or customer use. For example, market demand may create requirements for technological enhancements to permit a peripheral product to be functionally integrated with a display, a telecommunication device, and a processor to form a workstation. Such interchangeability and technological progress tend to make year-to-year comparisons less valid than they would be in an industry less subject to rapid change. Notes to Consolidated Financial Statements International Business Machines Corporation and Subsidiary Companies 61 Z Geographic Areas (Dollars in millions) 1993* 1992* 1991* United States Revenue - Customers $ 25,703 $ 24,633 $ 24,427 Interarea transfers 7,297 7,524 7,668 Total $ 33,000 $ 32,157 $ 32,095 Net loss (5,566) (5,545) (2,443) Assets at December 31 38,333 42,109 43,417 Europe/Middle East/Africa Revenue - Customers $ 21,779 $ 24,971 $ 26,114 Interarea transfers 1,071 1,154 838 Total $ 22,850 $ 26,125 $ 26,952 Net (loss) earnings (1,695) (1,728) 1,256 Assets at December 31 24,566 26,770 30,725 Asia Pacific Revenue - Customers $ 10,020 $ 9,672 $ 9,275 Interarea transfers 1,452 1,875 1,680 Total $ 11,472 $ 11,547 $ 10,955 Net (loss) earnings (443) 126 469 Assets at December 31 12,778 12,837 13,241 Americas Revenue - Customers $ 5,214 $ 5,247 $ 4,950 Interarea transfers 3,458 3,452 3,932 Total $ 8,672 $ 8,699 $ 8,882 Net (loss) earnings (251) 157 204 Assets at December 31 7,359 6,990 7,121 Eliminations Revenue $ (13,278) $ (14,005) $ (14,118) Net (loss) earnings (32) 125 (84) Assets (1,923) (2,001) (2,031) Consolidated Revenue $ 62,716 $ 64,523 $ 64,766 Net loss (7,987) (6,865) (598) Assets at December 31 81,113 86,705 92,473 *Net (loss) earnings before effect of changes in accounting for postemployment benefits (1993), income taxes (1992), and nonpension postretirement benefits (1991). Notes to Consolidated Financial Statements International Business Machines Corporation and Subsidiary Companies 62 Marketing and services in the United States and Canada are managed as a single enterprise. However, in compliance with Statement of Financial Accounting Standards 14, "Financial Reporting for Segments of a Business Enterprise," the United States is reported as a separate geographic area. Canadian operations are included in the "Americas" area. Non-U.S. subsidiaries operating in local currency environments account for approximately 85 percent of the company's non-U.S. revenue. The remaining 15 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 1993, 1992, and 1991. 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. Notes to Consolidated Financial Statements International Business Machines Corporation and Subsidiary Companies 63 Five-Year Comparison of Selected Financial Data (Dollars in millions except per share amounts) 1993 1992 1991 1990 1989 For the Year: Revenue $ 62,716 $ 64,523 $ 64,766 $ 68,931 $ 62,654 Net (loss) earnings before changes in accounting principles (7,987) (6,865) (598) 5,967 3,722 Per share of common stock (14.02) (12.03) (1.05) 10.42 6.41 Effect of accounting changes* (114) 1,900 (2,263) -- -- Per share of common stock (.20) 3.33 (3.96) -- -- Net (loss) earnings (8,101) (4,965) (2,861) 5,967 3,722 Per share of common stock (14.22) (8.70) (5.01) 10.42 6.41 Cash dividends paid on common stock 905 2,765 2,771 2,774 2,752 Per share of common stock 1.58 4.84 4.84 4.84 4.73 Investment in plant, rental machines and other property 3,232 4,698 6,502 6,548 6,410 Return on stockholders' equity -- -- -- 14.8% 9.6% At End of Year: Total assets $ 81,113 $ 86,705 $ 92,473 $ 87,568 $ 77,734 Net investment in plant, rental machines and other property 17,521 21,595 27,578 27,241 24,943 Working capital 6,052 2,955 7,018 13,313 13,875 Total debt 27,342 29,320 26,947 19,545 16,717 Stockholders' equity 19,738 27,624 36,679 42,553 38,252 *1993, postemployment benefits; 1992, income taxes; 1991, nonpension postretirement benefits. Selected Quarterly Data (Dollars in millions Net Per Share Common Stock except per share Gross (Loss) (Loss) Stock Prices and stock prices) Revenue Profit Earnings Earnings Dividends High Low 1993 First quarter $ 13,058 $ 5,162 $ (399)* $ (.70)*$ .54 $ 57.13 $ 45.88 Second quarter 15,519 5,974 (8,036) (14.10) .54 54.38 47.13 Third quarter 14,743 5,602 (48) (.12) .25 49.75 40.63 Fourth quarter 19,396 7,410 382 .62 .25 59.88 42.13 Total $ 62,716 $ 24,148 $ (8,101) $ (14.22)** $ 1.58 1992 First quarter $ 14,037 $ 7,133 $ 2,542+ $ 4.45+$ 1.21 $ 98.13 $ 83.13 Second quarter 16,224 7,863 734 1.29 1.21 98.63 81.63 Third quarter 14,702 6,779 (2,778) (4.87) 1.21 100.38 80.00 Fourth quarter 19,560 7,679 (5,463) (9.57) 1.21 81.13 48.75 Total $ 64,523 $ 29,454 $ (4,965) $ (8.70) $ 4.84 * Includes charge of $114 million, or $.20 per common share, cumulative effect of change in accounting for postemployment benefits. ** The sum of the quarters' earnings per share does not equal the year-to-date earnings per share due to changes in average shares calculations. This is in accordance with prescribed reporting requirements. + Includes benefit of $1,900 million, or $3.33 per share, cumulative effect of change in accounting for income taxes. There were 741,047 common stockholders of record at December 31, 1993. During 1993, common stockholders received $905 million in cash dividends. The regular quarterly common stock cash dividend payable March 10, 1994, will be at the rate of $.25 per share. This dividend will be IBM's 316th consecutive quarterly cash dividend. 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. EX-21 6 EXHIBIT II PARENTS AND SUBSIDIARIES
PERCENTAGE OF STATE OR COUNTRY VOTING SECURITIES OF INCORPORATION OWNED BY ITS OR ORGANIZATION IMMEDIATE PARENT -------------------- --------------------- Registrant: International Business Machines Corporation....................... New York Subsidiaries: IBM Credit Corporation............................................ Delaware 100 Integrated Systems Solutions Corp................................. Delaware 100 Altium............................................................ California 100 Metaphor.......................................................... Delaware 100 IBM World Trade Corporation....................................... Delaware 100 IBM Americas/Far East Systems Corporation...................... Delaware 100 IBM Asia Pacific Service Corporation........................... Japan 100 IBM China/Hong Kong Corporation................................ Delaware 100 IBM World Trade Venture Corporation............................ Delaware 100 IBM World Trade Asia Corporation............................... Delaware 100 WTC Insurance Corporation, Ltd. ............................... Bermuda 100 IBM Foreign Sales Corporation, Ltd. ........................... Jamaica 100 IBM Argentina, S.A. ........................................... Argentina 100(F) IBM Australia Ltd. ............................................ Australia 100 IBM Bahamas Ltd. .............................................. Bahamas 100 IBM de Bolivia, S.A. .......................................... Bolivia 100 IBM Brasil-Industria, Maquinas e Servicos Ltda................. Brazil 100(F) IBM Canada Limited--IBM Canada Limitee......................... Canada 100 IBM China Company Limited...................................... China 100 IBM de Chile S.A.C............................................. Chile 90(I) IBM de Colombia, S.A. ......................................... Colombia 90(E) IBM del Ecuador, C.A........................................... Ecuador 100 IBM Southeast Asia Services Ltd. .............................. Hong Kong 100 IBM Japan, Ltd. ............................................... Japan 100 IBM Korea, Inc. ............................................... Korea (South) 100 IBM de Mexico, S.A. ........................................... Mexico 100(B) IBM New Zealand Ltd. .......................................... New Zealand 100 IBM del Peru, S.A. ............................................ Peru 100 IBM Latin American Region S.A. ................................ Peru 100 IBM World Trade Asia-Pacific Corp.............................. Philippines 100(B) IBM Philippines, Incorporated.................................. Philippines 100(B) IBM Singapore Pte. Ltd. ....................................... Singapore 100 IBM Taiwan Corporation......................................... Taiwan 100 IBM Thailand Company Ltd. ..................................... Thailand 100(B) IBM del Uruguay, S.A. ......................................... Uruguay 100 IBM de Venezuela, S.A. ........................................ Venezuela 100 IBM World Trade Europe/Middle East/ Africa Corporation.......................................... Delaware 100 IBM Trade Development Inc. ................................. Delaware 100 IBM Eastern Europe Inc. .................................... Delaware 100 IBM Oesterreich, Internationale Bueromaschinen Gesellschaft m.b.H. ..................................................... Austria 100
PARENTS AND SUBSIDIARIES--(CONTINUED)
PERCENTAGE OF STATE OR COUNTRY VOTING SECURITIES OF INCORPORATION OWNED BY ITS OR ORGANIZATION IMMEDIATE PARENT -------------------- --------------------- IBM World Trade Europe/Middle East/ Africa Corporation (continued) International Business Machines of Belgium S.A. ............ Belgium 100(B) IBM Ceska Republika spol. s.r.o. ........................... Czech Republic 100 IBM Slovensko spol. s.r.o. ................................. Slovak Republic 100 IBM Danmark A/S............................................. Denmark 52(G) Oy International Business Machines Ab....................... Finland 75(G) Compagnie IBM France, S.A. ................................. France 100(B) IBM Eurocoordination, S.A. ................................. France -- (C) IBM Distribution and Support, S.A. ......................... France 100(B) IBM Europe, S.A. ........................................... France 100(B) IBM Trade Development, S.A. ................................ France 100(B) IBM Beteiligungs GmbH....................................... Germany 100 IBM Deutschland GmbH........................................ Germany 72(H) International Business Machines Corporation Magyarorszagi Kft......................................................... Hungary 100 IBM Ireland Ltd. ........................................... Ireland 100(D) IBM SEMEA S.p.A. ........................................... Italy 100 IBM Hellas Information Handling Systems S.A. ............ Greece 100(D) IBM Israel Ltd. ......................................... Israel 100(D) Companhia IBM Portuguesa, S.A. .......................... Portugal 100(B) IBM (International Business Machines) Turk Ltd. Sirketi.................................................. Turkey 100(A) IBM Nederland, N.V. ........................................ Netherlands 100 IBM International Finance N.V............................ Netherlands 100 IBM Polska Sp. z.o.o. ...................................... Poland 100 International Business Machines A/S......................... Norway 60(G) IBM East Europe/Asia Ltd. .................................. Russia 100(D) IBM Slovenija d.o.o. ....................................... Slovenia 100 International Business Machines, S.A. ...................... Spain 100(B) IBM Nordic Aktiebolag....................................... Sweden 100 IBM Svenska Aktiebolag................................... Sweden 100 IBM (Schweiz)--IBM (Suisse)--IBM (Svizzera)-- IBM (Switzerland)........................................ Switzerland 100 IBM United Kingdom Holdings Ltd. ........................... United Kingdom 100
- --------------- (A) Minor percentage owned by IBM World Trade Europe/Middle East/Africa Corporation. (B) Minor percentage held by other shareholders, subject to repurchase option. (C) IBM Eurocoordination, S.A. is owned approximately 14% each by subsidiaries located in France, Germany, Italy and the United Kingdom and approximately 4% each by subsidiaries located in Austria, Belgium, Denmark, Finland, Ireland, Netherlands, Norway, Portugal, Spain, Sweden and Switzerland and by six other minority shareholders. (D) Minor percentage owned by IBM World Trade Corporation. (E) Remaining percentage owned by IBM World Trade Asia Corporation. (F) Minor percentage owned by IBM Americas/Far East Systems Corporation. (G) IBM Nordic Aktiebolag (100% owned by IBM World Trade Europe/Middle East/Africa Corporation) owns the remaining percentage. (H) IBM World Trade Corporation owns 10% and IBM Beteiligungs GmbH owns 18%. (I) Remaining percentage owned by IBM Americas/Far East Systems Corporation.
EX-23 7 EXHIBIT III CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectuses constituting part of the Registration Statements on Form S-8 (Nos. 2-77235, 2-77236, 33-5224, 33-2225, 33-29022, 33-33458 and 33-34406) and Form S-3 (No. 33-50537) of International Business Machines Corporation of our report dated February 16, 1994 appearing on page 19 of the 1993 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 Schedules, which appears on page 7 of this Form 10-K. PRICE WATERHOUSE 1177 Avenue of the Americas New York, N.Y. 10036 March 28, 1994 EX-24 8 POWER OF ATTORNEY OF IBM DIRECTOR KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned director of International Business Machines Corporation, a New York corporation, which will file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Law, an Annual Report for 1993 on Form 10-K, hereby constitutes and appoints Louis V. Gerstner, Jr., Jerome B. York, Lawrence A. Zimmerman, John E. Hickey and Robert S. Stone his or her true and lawful attorneys-in-fact and agents, and each of them with full power to act without the others, for him or her and in his or her name, place and stead, in any and all capacities, to sign said 10-K Annual Report and any and all amendments thereto, and to file them so signed, with all exhibits 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 22nd day of February 1994. /s/ HAROLD BROWN ______________________________ Harold Brown POWER OF ATTORNEY OF IBM DIRECTOR KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned director of International Business Machines Corporation, a New York corporation, which will file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Law, an Annual Report for 1993 on Form 10-K, hereby constitutes and appoints Louis V. Gerstner, Jr., Jerome B. York, Lawrence A. Zimmerman, John E. Hickey and Robert S. Stone his or her true and lawful attorneys-in-fact and agents, and each of them with full power to act without the others, for him or her and in his or her name, place and stead, in any and all capacities, to sign said 10-K Annual Report and any and all amendments thereto, and to file them so signed, with all exhibits 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 22nd day of February 1994. /s/ JAMES E. BURKE ______________________________ James E. Burke POWER OF ATTORNEY OF IBM DIRECTOR KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned director of International Business Machines Corporation, a New York corporation, which will file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Law, an Annual Report for 1993 on Form 10-K, hereby constitutes and appoints Louis V. Gerstner, Jr., Jerome B. York, Lawrence A. Zimmerman, John E. Hickey and Robert S. Stone his or her true and lawful attorneys-in-fact and agents, and each of them with full power to act without the others, for him or her and in his or her name, place and stead, in any and all capacities, to sign said 10-K Annual Report and any and all amendments thereto, and to file them so signed, with all exhibits 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 22nd day of February 1994. /s/ THOMAS F. FRIST, JR. ______________________________ Thomas F. Frist, Jr. POWER OF ATTORNEY OF IBM DIRECTOR KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned director of International Business Machines Corporation, a New York corporation, which will file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Law, an Annual Report for 1993 on Form 10-K, hereby constitutes and appoints Louis V. Gerstner, Jr., Jerome B. York, Lawrence A. Zimmerman, John E. Hickey and Robert S. Stone his or her true and lawful attorneys-in-fact and agents, and each of them with full power to act without the others, for him or her and in his or her name, place and stead, in any and all capacities, to sign said 10-K Annual Report and any and all amendments thereto, and to file them so signed, with all exhibits 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 22nd day of February 1994. /s/ FRITZ GERBER ______________________________ Fritz Gerber POWER OF ATTORNEY OF IBM DIRECTOR KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned director of International Business Machines Corporation, a New York corporation, which will file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Law, an Annual Report for 1993 on Form 10-K, hereby constitutes and appoints Louis V. Gerstner, Jr., Jerome B. York, Lawrence A. Zimmerman, John E. Hickey and Robert S. Stone his or her true and lawful attorneys-in-fact and agents, and each of them with full power to act without the others, for him or her and in his or her name, place and stead, in any and all capacities, to sign said 10-K Annual Report and any and all amendments thereto, and to file them so signed, with all exhibits 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 22nd day of February 1994. /s/ LOUIS V. GERSTNER, JR. ______________________________ Louis V. Gerstner, Jr. POWER OF ATTORNEY OF IBM DIRECTOR KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned director of International Business Machines Corporation, a New York corporation, which will file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Law, an Annual Report for 1993 on Form 10-K, hereby constitutes and appoints Louis V. Gerstner, Jr., Jerome B. York, Lawrence A. Zimmerman, John E. Hickey and Robert S. Stone his or her true and lawful attorneys-in-fact and agents, and each of them with full power to act without the others, for him or her and in his or her name, place and stead, in any and all capacities, to sign said 10-K Annual Report and any and all amendments thereto, and to file them so signed, with all exhibits 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 22nd day of February 1994. /s/ JUDITH RICHARDS HOPE ______________________________ Judith Richards Hope POWER OF ATTORNEY OF IBM DIRECTOR KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned director of International Business Machines Corporation, a New York corporation, which will file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Law, an Annual Report for 1993 on Form 10-K, hereby constitutes and appoints Louis V. Gerstner, Jr., Jerome B. York, Lawrence A. Zimmerman, John E. Hickey and Robert S. Stone his or her true and lawful attorneys-in-fact and agents, and each of them with full power to act without the others, for him or her and in his or her name, place and stead, in any and all capacities, to sign said 10-K Annual Report and any and all amendments thereto, and to file them so signed, with all exhibits 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 22nd day of February 1994. /s/ NANNERL O. KEOHANE ______________________________ Nannerl O. Keohane POWER OF ATTORNEY OF IBM DIRECTOR KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned director of International Business Machines Corporation, a New York corporation, which will file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Law, an Annual Report for 1993 on Form 10-K, hereby constitutes and appoints Louis V. Gerstner, Jr., Jerome B. York, Lawrence A. Zimmerman, John E. Hickey and Robert S. Stone his or her true and lawful attorneys-in-fact and agents, and each of them with full power to act without the others, for him or her and in his or her name, place and stead, in any and all capacities, to sign said 10-K Annual Report and any and all amendments thereto, and to file them so signed, with all exhibits 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 22nd day of February 1994. /s/ CHARLES F. KNIGHT ______________________________ Charles F. Knight POWER OF ATTORNEY OF IBM DIRECTOR KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned director of International Business Machines Corporation, a New York corporation, which will file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Law, an Annual Report for 1993 on Form 10-K, hereby constitutes and appoints Louis V. Gerstner, Jr., Jerome B. York, Lawrence A. Zimmerman, John E. Hickey and Robert S. Stone his or her true and lawful attorneys-in-fact and agents, and each of them with full power to act without the others, for him or her and in his or her name, place and stead, in any and all capacities, to sign said 10-K Annual Report and any and all amendments thereto, and to file them so signed, with all exhibits 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 22nd day of February 1994. /s/ THOMAS S. MURPHY ______________________________ Thomas S. Murphy POWER OF ATTORNEY OF IBM DIRECTOR KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned director of International Business Machines Corporation, a New York corporation, which will file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Law, an Annual Report for 1993 on Form 10-K, hereby constitutes and appoints Louis V. Gerstner, Jr., Jerome B. York, Lawrence A. Zimmerman, John E. Hickey and Robert S. Stone his or her true and lawful attorneys-in-fact and agents, and each of them with full power to act without the others, for him or her and in his or her name, place and stead, in any and all capacities, to sign said 10-K Annual Report and any and all amendments thereto, and to file them so signed, with all exhibits 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 22nd day of February 1994. /s/ JOHN R. OPEL ______________________________ John R. Opel POWER OF ATTORNEY OF IBM DIRECTOR KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned director of International Business Machines Corporation, a New York corporation, which will file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Law, an Annual Report for 1993 on Form 10-K, hereby constitutes and appoints Louis V. Gerstner, Jr., Jerome B. York, Lawrence A. Zimmerman, John E. Hickey and Robert S. Stone his or her true and lawful attorneys-in-fact and agents, and each of them with full power to act without the others, for him or her and in his or her name, place and stead, in any and all capacities, to sign said 10-K Annual Report and any and all amendments thereto, and to file them so signed, with all exhibits 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 22nd day of February 1994. /s/ PAUL J. RIZZO ______________________________ Paul J. Rizzo POWER OF ATTORNEY OF IBM DIRECTOR KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned director of International Business Machines Corporation, a New York corporation, which will file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Law, an Annual Report for 1993 on Form 10-K, hereby constitutes and appoints Louis V. Gerstner, Jr., Jerome B. York, Lawrence A. Zimmerman, John E. Hickey and Robert S. Stone his or her true and lawful attorneys-in-fact and agents, and each of them with full power to act without the others, for him or her and in his or her name, place and stead, in any and all capacities, to sign said 10-K Annual Report and any and all amendments thereto, and to file them so signed, with all exhibits 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 22nd day of February 1994. /s/ JOHN B. SLAUGHTER ______________________________ John B. Slaughter POWER OF ATTORNEY OF IBM DIRECTOR KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned director of International Business Machines Corporation, a New York corporation, which will file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Law, an Annual Report for 1993 on Form 10-K, hereby constitutes and appoints Louis V. Gerstner, Jr., Jerome B. York, Lawrence A. Zimmerman, John E. Hickey and Robert S. Stone his or her true and lawful attorneys-in-fact and agents, and each of them with full power to act without the others, for him or her and in his or her name, place and stead, in any and all capacities, to sign said 10-K Annual Report and any and all amendments thereto, and to file them so signed, with all exhibits 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 22nd day of February 1994. /s/ LODEWIJK C. VAN WACHEM ______________________________ Lodewijk C. Van Wachem POWER OF ATTORNEY OF IBM DIRECTOR KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned director of International Business Machines Corporation, a New York corporation, which will file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Law, an Annual Report for 1993 on Form 10-K, hereby constitutes and appoints Louis V. Gerstner, Jr., Jerome B. York, Lawrence A. Zimmerman, John E. Hickey and Robert S. Stone his or her true and lawful attorneys-in-fact and agents, and each of them with full power to act without the others, for him or her and in his or her name, place and stead, in any and all capacities, to sign said 10-K Annual Report and any and all amendments thereto, and to file them so signed, with all exhibits 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 22nd day of February 1994. /s/ EDGAR S. WOOLARD, JR. ______________________________ Edgar S. Woolard, Jr. EX-27 9 DATA STATED IN MILLIONS IBM CORPORATION - VOLUNTARY SCHEDULE-CERTAIN FINANCIAL INFORMATION
FOURTH QTR FOURTH QTR YEAR TO DATE REGULATION STATEMENT CAPTION 1993 1992* 1993 1992 - ---------- ----------------- ---------- --------- -------- -------- 5-02(1) Cash and Cash Equivalents $ 5,861 $ 4,446 -- 5-02(2) Marketable Securities 1,272 1,203 -- 5-02(3)(a)(1) Notes and Accounts Receivable-Trade 11,676 12,829 5-02(6) Inventory 7,565 8,385 -- 5-02(9) Total Current Assets 39,202 39,692 -- 5-02(13) Property, Plant and Equipment 47,504 52,786 5-02(14) Accumulated Depreciation 29,983 31,191 5-02(18) Total Assets 81,113 86,705 -- 5-02(21) Total Current Liabilities 33,150 36,737 -- 5-02(22) Long-term Debt 15,245 12,853 -- 5-02(24) Other Liabilities 12,980 9,491 -- 5-02(29) Preferred Stock 1,091 0 5-02(30) Capital Stock 6,980 6,563 -- 5-02(31)(a)(3)(ii) Retained Earnings 11,667 19,124 -- 5-03(b)(1)(a) Gross Income: Sales 10,371 10,966 $30,591 $ 33,755 5-03(b)(1)(c)(d) Gross Income: Services and Rentals 9,025 8,595 32,125 30,768 5-03(b)(2)(a) Cost of Sales 6,543 7,251 20,696 19,698 5-03(b)(2)(c)(d) Cost of Services and Rentals 5,442 4,631 17,872 15,371 5-03(b)(8) Interest Expense 301 365 1,273 1,360 5-03(b)(10) Earnings Before Income Taxes 663 (6,948) (8,797) (9,026) 5-03(b)(11) Provision for Income Taxes 281 (1,485) (810) (2,161) 5-03(b)(18) Effect of Changes in Accounting - - (114) 1,900 Principles 5-03(b)(19) Net Earnings 382 (5,463) (8,148) (4,965) * Reclassified to conform with 1993 presentation
EX-99.29(I) 10 EXHIBIT IV INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES ADDITIONAL EXHIBITS In the fourth quarter of 1993, the Company implemented Statement of Financial Accounting Standards 112, "Employers' Accounting for Postretirement Benefits," effective as of January 1, 1993. The cumulative effect of adopting this standard resulted in a one-time charge of $114 million (net of approximately $61 million of income tax benefits), which was recorded against first quarter results. The 1993 quarterly Consolidated Statement of Operations are restated in Exhibit IVa. The accounting change is discussed on page 37 of IBM's 1993 Annual Report to Stockholders. EX-99.29(II) 11 EXHIBIT IV(A) INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES QUARTERLY CONSOLIDATED STATEMENT OF OPERATIONS-RESTATED* 1993
FIRST SECOND THIRD FOURTH QUARTER+ QUARTER+ QUARTER+ QUARTER+ FULL YEAR ----------- ----------- ----------- ----------- --------- (DOLLARS IN MILLIONS) Revenue: Hardware Sales...................................... $ 5,737 $ 7,526 $ 6,957 $ 10,371 $ 30,591 Software............................................ 2,521 2,715 2,648 3,069 10,953 Services............................................ 1,909 2,352 2,289 3,161 9,711 Maintenance......................................... 1,804 1,857 1,823 1,811 7,295 Rentals and financing............................... 1,087 1,069 1,026 984 4,166 ----------- ----------- ----------- ----------- --------- 13,058 15,519 14,743 19,396 62,716 Cost: Hardware Sales...................................... 4,072 5,222 4,858 6,544 20,696 Software............................................ 937 1,033 1,026 1,314 4,310 Services............................................ 1,497 1,998 1,986 2,798 8,279 Maintenance......................................... 919 862 854 910 3,545 Rentals and financing............................... 471 430 417 420 1,738 ----------- ----------- ----------- ----------- --------- 7,896 9,545 9,141 11,986 38,568 Gross Profit.......................................... 5,162 5,974 5,602 7,410 24,148 Operating Expenses: Selling, general and administrative................. 4,076 4,487 4,259 5,460 18,282 Research, development and engineering............... 1,356 1,376 1,372 1,454 5,558 Restructuring charges............................... -- 8,945 -- -- 8,945 ----------- ----------- ----------- ----------- --------- 5,432 14,808 5,631 6,914 32,785 Operating (Loss) Income............................... (270) (8,834) (29) 496 (8,637) Other Income, principally interest.................... 195 158 293 467 1,113 Interest Expense...................................... 305 322 346 300 1,273 ----------- ----------- ----------- ----------- --------- (Loss) Earnings before Income Taxes................... (380) (8,998) (82) 663 (8,797) (Benefit) Provision for Income Taxes.................. (95) (962) (34) 281 (810) ----------- ----------- ----------- ----------- --------- Net (Loss) Earnings before change in accounting principle............................................. (285) (8,036) (48) 382 (7,987) Cumulative effect of change in accounting for postretirement benefits......................... (114) -- -- -- (114) ----------- ----------- ----------- ----------- --------- Net (Loss) Earnings................................... (399) (8,036) (48) 382 (8,101) Preferred Stock Dividends............................. -- 5 22 20 47 ----------- ----------- ----------- ----------- --------- Net (Loss) Earnings Applicable to common shareholders.......................................... $ (399) $ (8,041) $ (70) $ 362 $ (8,148) ----------- ----------- ----------- ----------- --------- ----------- ----------- ----------- ----------- ---------
- --------------- * See text in Exhibit IV + Unaudited -----END PRIVACY-ENHANCED MESSAGE-----