-----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, qbb5wtUsWn5z7wPphytOJWCFn3lXdoSR06ABR8/CWaJNiGkj94r7YZcXv7ZooRMq PGz29MKYz5RXnj5TCOLJzQ== 0000950112-95-002045.txt : 19950804 0000950112-95-002045.hdr.sgml : 19950804 ACCESSION NUMBER: 0000950112-95-002045 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950803 SROS: CSX SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL BUSINESS MACHINES CORP CENTRAL INDEX KEY: 0000051143 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER & OFFICE EQUIPMENT [3570] IRS NUMBER: 130871985 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-02360 FILM NUMBER: 95558635 BUSINESS ADDRESS: STREET 1: OLD ORCHARD RD CITY: ARMONK STATE: NY ZIP: 10504 BUSINESS PHONE: 9147651900 10-Q 1 INTERNATIONAL BUSINESS MACHINES CORPORATION UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 F O R M 1 0 - Q QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JUNE 30, 1995 1-2360 ______________________ (Commission file number) INTERNATIONAL BUSINESS MACHINES CORPORATION ____________________________________________________ (Exact name of registrant as specified in its charter) New York 13-0871985 ______________________ __________________________________ (State of incorporation) (IRS employer identification number) Armonk, New York 10504 ______________________________________ ________ (Address of principal executive offices) (Zip Code) 914-765-1900 _____________________________ (Registrant's telephone number) The registrant has 568,723,203 shares of common stock outstanding at June 30, 1995. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section l3 or l5(d) of the Securities Exchange Act of 1934 during the preceding l2 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ______ ______. INDEX _____ Page ____ Part I - Financial Information: Item 1. Consolidated Financial Statements Consolidated Statement of Operations for the three and six months ended June 30, 1995 and 1994 ................ 1 Consolidated Statement of Financial Position at June 30,1995 and December 31, 1994 ..................... 2 Consolidated Statement of Cash Flows for the six months ended June 30, 1995 and 1994 ........................... 4 Notes to Consolidated Financial Statements ............... 5 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition ..... 6 Part II - Other Information .................................... 14 ITEM 1. INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) (Dollars in millions) Three Months Ended Six Months Ended June 30 June 30 ___________________ __________________ 1995 1994 1995 1994 Revenue: __________ _______ ________ _______ Hardware sales $ 8,659 $ 7,695 $16,386 $13,963 Software 3,072 2,726 5,945 5,309 Services 3,041 2,293 5,486 4,128 Maintenance 1,877 1,796 3,698 3,564 Rentals and financing 882 841 1,751 1,760 _______ _______ _______ _______ Total revenue 17,531 15,351 33,266 28,724 Cost: Hardware sales 5,190 5,137 9,985 9,517 Software 1,066 1,021 2,071 2,281 Services 2,386 1,844 4,360 3,400 Maintenance 868 904 1,768 1,775 Rentals and financing 390 341 787 707 _______ _______ _______ _______ Total cost 9,900 9,247 18,971 17,680 _______ _______ _______ _______ Gross profit 7,631 6,104 14,295 11,044 Operating expenses: Selling, general and administrative 3,883 3,935 7,516 7,084 Research, development and engineering 974 1,091 1,887 2,192 _______ _______ _______ _______ Total operating expenses 4,857 5,026 9,403 9,276 Operating income 2,774 1,078 4,892 1,768 Other income, principally interest 238 479 484 887 Interest expense 188 364 368 777 _______ _______ _______ _______ Earnings before income taxes 2,824 1,193 5,008 1,878 Income tax provision 1,108 504 2,003 798 _______ _______ _______ _______ Net earnings 1,716 689 3,005 1,080 Preferred stock dividends and transaction costs 5 21 52 42 _______ _______ _______ _______ Net earnings applicable to common shareholders $ 1,711 $ 668 $ 2,953 $ 1,038 ======= ======= ======= ======= Net earning per share of common stock $ 2.97 $ 1.14 $ 5.09 $ 1.78 Average number of common shares outstanding (millions) 575.4 584.0 580.3 583.1 Cash dividends per common share $ .25 $ .25 $ .50 $ .50 (The accompanying notes are an integral part of the financial statements.) - 1 - INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION (UNAUDITED) ASSETS
At June 30 At December 31 (Dollars in millions) 1995 1994 __________ ______________ Current assets: Cash $ 1,300 $ 1,240 Cash equivalents 8,593 6,682 Marketable securities - at cost, which approximates market 636 2,632 Notes and accounts receivable - net of allowances 14,790 15,182 Sales-type leases receivable 6,321 6,351 Inventories, at lower of average cost or market Finished goods 629 1,442 Work in process 5,115 4,636 Raw materials 418 256 _______ _______ Total inventories 6,162 6,334 Prepaid expenses and other current assets 3,899 2,917 _______ _______ Total current assets 41,701 41,338 Plant, rental machines and other property 45,605 44,820 Less: Accumulated depreciation 28,761 2,156 _______ _______ Plant, rental machines and other property - net 16,844 16,664 Investments and other assets: Software, less accumulated amortization (1995, $10,808; 1994, $10,793) 2,654 2,963 Investments and sundry assets 20,402 20,126 _______ _______ Total investments and other assets 23,056 23,089 _______ _______ Total assets $81,601 $81,091 ======= =======
(The accompanying notes are an integral part of the financial statements.) - 2 - INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION - (CONTINUED) (UNAUDITED) LIABILITIES AND STOCKHOLDERS' EQUITY
At June 30 At December 31 (Dollars in millions) 1995 1994 ____________ ______________ Current liabilities: Taxes $ 2,085 $ 1,771 Accounts payable and accruals 15,166 17,885 Short-term debt 11,278 9,570 ____________ ____________ Total current liabilities 28,529 29,226 Long-term debt 11,749 12,548 Other liabilities 14,330 14,023 Deferred income taxes 2,147 1,881 ____________ ____________ Total liabilities 56,755 57,678 Stockholders' equity: Preferred stock - par value $.01 per share 253 1,081 Shares authorized: 150,000,000 Shares issued: 1995 - 2,610,711 1994 - 11,145,000 Common stock- par value $1.25 per share 7,195 7,342 Shares authorized: 750,000,000 Shares issued: 1995 - 570,193,873 1994 - 588,180,244 Retained earnings 13,478 12,352 Translation and other adjustments 3,920 2,638 ____________ ____________ Total stockholders' equity 24,846 23,413 ____________ ____________ Total liabilities and shareholders' equity $ 81,601 $ 81,091 ============ ============
- 3 - INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30: (UNAUDITED) (Dollars in millions) 1995 1994* ________ _______ Cash flow from operating activities: Net earnings $ 3,005 $ 1,080 Adjustments to reconcile net earnings to cash provided from operating activities: Effect of restructuring charges (1,381) (1,449) Depreciation 1,960 2,146 Amortization of software 792 1,189 Changes in operating assets and liabilities 334 1,918 Gain on disposition of investment assets (68) (373) _______ _______ Net cash provided from operating activities 4,642 4,511 _______ _______ Cash flow from investing activities: Payments for plant, rental machines and other property, net of proceeds (1,202) (812) Investment in software (482) (635) Purchases of marketable securities and other investments (786) (1,496) Proceeds from marketable securities and other investment 2,561 1,620 Proceeds from sale of Federal Systems Company -- 1,503 _______ _______ Net cash provided from investing activities 91 180 _______ _______ Cash flow from financing activities: Proceeds from new debt 2,845 3,554 Payments to settle debt (4,515) (5,943) Short-term borrowings less than 90 days - net 1,460 (456) Preferred stock transactions - net (854) -- Common stock transactions - net (1,829) 168 Cash dividends paid (301) (327) _______ _______ Net cash (used in) provided from financing activities (3,194) (3,004) _______ _______ Effect of exchange rate changes on cash and cash equivalents 432 (167) _______ _______ Net change in cash and cash equivalents 1,971 1,520 Cash and cash equivalents at January 1 7,922 5,861 _______ _______ Cash and cash equivalents at June 30 $ 9,893 $ 7,381 ======= ======= * Reclassified to conform with 1995 presentation. (The accompanying notes are an integral part of the financial statements.) - 4 - Notes to Consolidated Financial Statements - ------------------------------------------ 1. In the opinion of management of International Business Machines Corporation (the company), all adjustments necessary to a fair statement of the results for the unaudited three and six month periods have been made. In the first quarter of 1994, in addition to the adjustments for normal recurring accruals, the company recorded charges of $296 million for software writedowns and an after-tax gain of $248 million for the sale of its Federal Systems Company (FSC). 2. The translation and other adjustments line of stockholders' equity includes equity translation adjustments of $3,959 million at June 30, 1995, and $2,672 million at December 31, 1994. 3. The Consolidated Statement of Financial Position at June 30, 1995 includes balances relative to restructuring programs in Accounts payable and accruals of approximately $.3 billion, and $.6 billion in Plant, rental machines and other property. At December 31, 1994, the approximate restructuring balances were $1.3 billion in Accounts payable and accruals, $.1 billion in Other liabilities, and $.9 billion in Plant, rental machines and other property. Although utilization of restructuring reserves in the first half of 1995 was slightly lower than anticipated, the company has determined that the restructuring reserve balances are adequate to cover committed restructuring actions and will be fully utilized prior to December 31, 1995. 4. A supplemental Consolidated Statement of Operations schedule has been provided for informational purposes only, to exclude the effects of the FSC sale and software writedowns recorded in the first quarter of 1994. The supplemental statement is shown in exhibit 99 on page 21. This information is presented voluntarily and is provided solely to assist in understanding the effects of these items on the Consolidated Statement of Operations. 5. Subsequent Event: On July 5, 1995, the company announced that it successfully completed its tender offer to acquire the common stock of Lotus Development Corporation at $64 per share. Please refer to pages 16 and 17 (Item 5) for additional information regarding this acquisition. The financial results reported for the six months of 1995, do not reflect any impacts of this acquisition. 6. Subsequent Event: On July 25, 1995, the IBM Board of Directors authorized the company to purchase up to an additional $2.5 billion of IBM common stock. The company plans to purchase the shares on the open market from time to time, depending on market conditions. On January 31, 1995, the IBM Board of Directors authorized the company to repurchase up to $2.5 billion of IBM common shares. As of July 21, 1995, the company had repurchased $2.1 billion of the company's common stock under the January authorization. - 5 - ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS ------------------------------------ OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION ------------------------------------------------ FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1995 ------------------------------------------------ The company's second quarter results were strong as revenue, earnings, and earnings per share showed significant improvement over the second quarter of 1994. The overall gross profit margin strengthened to 43.5 percent and the balance sheet remained strong. Cash balances held at first quarter levels of $10.5 billion after $1.4 billion of stock repurchases and $500 million in cash restructuring costs. Although the second quarter results are encouraging, the company's business improved each quarter last year, which will make year-over-year financial comparisons more difficult in the second half of 1995. Also, demand is slowing for some offerings and price pressures are increasing in the United States and a number of key European countries remain sluggish. Results of Operations - --------------------- (Dollars in millions) Three Months Ended Six Months Ended June 30 June 30 __________________ ________________ 1995 1994 1995 1994 ________ _______ ________ ______ Revenue $17,531 $15,351 $33,266 $28,724 Cost 9,900 9,247 18,971 17,680 _______ _______ _______ _______ Gross profit $ 7,631 $ 6,104 $14,295 $11,044 Gross profit margin 43.5% 39.8% 43.0% 38.4% Net earnings $ 1,716 $ 689 $ 3,005 $ 1,080 The company recorded second quarter 1995 earnings of $2.97 per common share, compared with $1.14 per common share, in the second quarter of last year. Total revenue increased 14.2 percent over the same period of 1994 to $17.5 billion. The average number of common shares outstanding for the period was 575.4 million in 1995 versus 584.0 million in 1994. Net earnings for the six months ended June 30, 1995, were $5.09 per common share, compared with earnings of $1.78 per common share in the first six months of 1994. The company's first quarter 1994 results include an after-tax gain of $248 million ($.43 per common share) from the sale of the FSC and an after tax writedown of $192 million ($.33 per common share) relating to a change in software amortization periods. Excluding these items, the company's adjusted earnings per common share was $1.68 for the first six months of 1994. Total revenue for the six months ended June 30, 1995 were up 15.8 percent from the prior year. The average number of common shares outstanding for the period was 580.3 million in 1995 versus 583.1 million in 1994. - 6 - Results of Operations - (continued) Reported revenue grew in all geographic areas in the second quarter when compared with last year's second quarter. Revenue from the United States totaled $6.4 billion, an increase of 8.4 percent from the same period of last year. Revenue from Europe/Middle East/Africa totaled $6.1 billion, up 11.5 percent year-over-year, while Asia-Pacific revenue was $3.6 billion, an increase of 30.9 percent. Revenue from Latin America was $742 million, up 19.7 percent, while revenue from Canada grew 13.6 percent to $659 million when compared with the same period of 1994. Currency had about a 7 percent point favorable impact on the company's revenue results in the second quarter. Excluding the effects of currency, sales growth in the United States, Canada, Latin America, and Asia-Pacific ranged from satisfactory to strong, while results in Europe were disappointing. Total expenses fell $104 million in the second quarter from the comparable period of 1994. Hardware Sales - -------------- (Dollars in millions) Three Months Ended Six Months Ended June 30 June 30 ___________________ ___________________ 1995 1994 1995 1994 _______ _______ _______ _______ Total revenue $ 8,659 $ 7,695 $16,386 $13,963 Total cost 5,190 5,137 9,985 9,517 _______ _______ _______ _______ Gross profit $ 3,469 $ 2,558 $ 6,401 $ 4,446 Gross profit margin 40.1% 33.2% 39.1% 31.8% Revenue from hardware sales for the second quarter and first six months of 1995 increased 12.5 percent and 17.4 percent, respectively, over comparable periods in 1994. The second quarter and first six-months revenue had a benefit of about 7 points and 6 points, respectively, from currency in 1995. The hardware sales revenue increase was driven by continued strong growth in AS/400* and RISC/6000* products on both a second-quarter and six-month basis when compared to the same periods in 1994. Personal computers revenue increased year-over-year for both the second quarter and first six months of 1995 and were particularly strong in Asia-Pacific and Latin America, while weak in Europe. Storage products had good revenue growth, when compared to 1994 second-quarter and six-months results, driven by high-end shipments of RAMAC product. Original Equipment Manufacturer (OEM) products continued to show growth in both the second-quarter and first six-months results when compared to the same periods of 1994. - 7 - Results of Operations - (continued) - ---------------------------------- System/390* revenue declined in the second quarter of 1995 but showed an increase for the first six months of 1995, when compared to the same periods of the prior year. Although second quarter revenue decreased from the same period last year due to price reductions, mainframe demand remained strong, as measured in MIPS (millions of instructions per second). Hardware sales gross profit dollars for the second quarter and first six months of 1995, increased 35.6 percent and 44.0 percent, respectively, over comparable periods in 1994. The increases were driven by cost improvements as a result of prior restructuring actions, reengineering activities, and increased revenue growth in key product areas. Although margins increased, they continue to be affected by competitive pricing pressures on high-end products and personal computers. Software (Dollars in millions) Three Months Ended Six Months Ended June 30 June 30 ___________________ ___________________ 1995 1994 1995 1994 ________ ________ ________ ________ Total revenue $3,072 $2,726 $5,945 $5,309 Total cost 1,066 1,021 2,071 2,281 ______ ______ _____ _____ Gross profit $2,006 $1,705 $3,874 $3,028 Gross profit margin 65.3% 62.5% 65.2% 57.0% Revenue from software for the second quarter and first six months of 1995, increased 12.7 percent and 12.0 percent, respectively, over comparable periods in 1994. The second-quarter and first-six months results had a benefit of about 8 points and 7 points, respectively, from currency in 1995. These increases were primarily driven by higher one-time-charge revenue in distributed software associated with strong AS/400 shipments and strong sales of desktop software during 1995. Software gross profit dollars for the second quarter and six months of 1995 increased 17.7 percent and 28.1 percent, respectively, versus the same periods in 1994. The 1994 six-month gross profit dollars and margin were affected by the accounting charges relating to the change in software amortization periods implemented in the first quarter of 1994. Excluding the effects of this change, 1995 gross profit dollars would have increased 16.5 percent and the gross profit margin would have increased 2.6 points from the first six months of 1994. - 8 - Results of Operations - (continued) - ---------------------------------- Services Other Than Maintenance - ------------------------------- (Dollars in millions) Three Months Ended Six Months Ended June 30 June 30 ___________________ ___________________ 1995 1994 1995 1994 ______ ______ ______ ______ Total revenue $3,041 $2,293 $5,486 $4,128 Total cost 2,386 1,844 4,360 3,400 ______ ______ ______ ______ Gross profit $ 655 $ 449 $1,126 $ 728 Gross profit margin 21.5% 19.6% 20.5% 17.6% Services revenue increased 32.6 percent and 32.9 percent, respectively, in the second quarter and first six months of 1995, when compared to the same period of last year. Services revenue benefited by about 9 points and 8 points, respectively, from currency in the second quarter and first six months of 1995. The revenue increases were primarily driven by continued growth in managed operations for both system and networking activity. Services gross profit dollars increased in the second quarter and first six months of 1995, 45.9 percent and 54.7 percent, respectively, when compared to year-ago periods. Maintenance - ----------- (Dollars in millions) Three Months Ended Six Months Ended June 30 June 30 __________________ __________________ 1995 1994 1995 1994 ______ ______ ______ ______ Total revenue $1,877 $1,796 $3,698 $3,564 Total cost 868 904 1,768 1,775 ______ ______ ______ _______ Gross profit $1,009 $ 892 $1,930 $1,789 Gross profit margin 53.8% 49.7% 52.2% 50.2% Maintenance revenue for the second quarter and first six months of 1995 increased 4.5 percent and 3.8 percent, respectively, over comparable periods in 1994. The second-quarter and six-months revenue had a benefit of about 8 points and 7 points, respectively, from currency in 1995. Maintenance revenue continues to be affected by the competitive environment and resulting pricing pressures on maintenance offerings. Maintenance gross profit dollars increased 13.1 percent and 7.9 percent, respectively, in the second quarter and first six months of 1995, when compared to the same periods of 1994. - 9 - Results of Operations - (continued) - ----------------------------------- Rentals and financing - --------------------- (Dollars in millions) Three Months Ended Six Months Ended June 30 June 30 ___________________ __________________ 1995 1994 1995 1994 _______ _______ ________ ________ Total revenue $ 882 $ 841 $ 1,751 $ 1,760 Total cost 390 341 787 707 _______ _______ ________ ________ Gross profit $ 492 $ 500 $ 964 $ 1,053 Gross profit margin 55.7% 59.4% 55.0% 59.8% Rentals and financing revenue increased in the second quarter 4.9 percent and decreased .5 percent for the first six months of 1995, when compared to the same periods of 1994. The second quarter and six months revenue had a benefit of about 5 points and 6 points, respectively, from currency in 1995. The 1995 results reflect a substantial increase in new financing originations versus 1994. Rentals and financing gross profit dollars declined 1.6 percent and 8.5 percent, respectively, for the second quarter and first six month's of 1995, when compared to the same periods of the prior year. These decreases are a reflection of declining prices on high-end products and the rental business over the past few years and to changing country mix. Expenses - -------- (Dollars in millions) Three Months Ended Six Months Ended June 30 June 30 ___________________ _____________________ 1995 1994 1995 1994 ________ ________ ________ _______ Selling, general and administrative $ 3,883 $ 3,935 $ 7,516 $ 7,084 Percentage of revenue 22.2% 25.6% 22.6% 24.7% Research, development and engineering $ 974 $ 1,091 $ 1,887 $ 2,192 Percentage of revenue 5.6% 7.1% 5.7% 7.6% Selling, general and administrative expense decreased 1.3 percent in the second quarter of 1995, and increased 6.1 percent for the first six months of 1995, when compared to the same periods in 1994. Excluding the effects of currency, the second quarter results would have shown a decrease of about 7 percent from 1994 levels. The first six-months results of 1994 included the $382 million gain from the sale of FSC. Excluding this gain and the effects of currency (about $400 million), selling, general and administrative expense would have decreased by about 5.4 percent. Research, development and engineering expense, which is primarily performed in the United States, decreased 10.7 percent and 13.9 percent, respectively for the second quarter and first six months of 1995, when compared to the same periods of 1994. These decreases reflect the company's focus on productivity and expense controls. - 10 - Results of Operations - (continued) - ---------------------------------- Other income, principally interest and interest expense decreased from 1994 second quarter and first six month levels due primarily to the switch to the REAL currency in Brazil in July, 1994. This change reduced the company's interest income and interest expense, as well as the exchange gains and losses associated with the local currency cash deposits and borrowings, which are a component of selling, general and administrative expense. Interest on total borrowings of the company and its subsidiaries, which includes interest expense and interest costs associated with rentals and financing, amounted to $413 million and $802 million for the second quarter and first six months of 1995, respectively. Of these amounts, $6 million for the second quarter and $10 million for the first six months were capitalized. The effective tax rate for the quarter ended June 30, 1995, was 39.2 percent, versus 42.3 percent for the same period in 1994. The decrease is primarily the result of the mix of earnings and corresponding weighting of tax rates on a country-by-country basis. The effective tax rate for the first six months of 1995 was 40.0 percent, versus a 42.5 percent for the same period in 1994. The change is a result of the same factors that impacted the second quarter effective tax rate. Financial Condition - ------------------- The company's financial condition continued to strengthen during the first half of 1995. The total of cash, cash equivalents, and marketable securities at June 30, 1995 was virtually flat from year-end levels of $10.5 billion, despite spending $2.7 billion for common and preferred stock buybacks and $1.4 billion in restructuring costs. Working Capital - --------------- (Dollars in millions) At June 30 At December 31 1995 1994 __________ ______________ Current assets $ 41,701 $ 41,338 Current liabilities 28,529 29,226 _________ ________ Working capital $ 13,172 $ 12,112 Total current assets increased $.4 billion from year-end 1994 with an increase in prepaid expenses of $1.0 billion, offset by decreases in accounts receivable of $.4 billion and $.2 billion in inventories. The increase in prepaid expenses results primarily from the seasonal increase in deferred account and prepaid activity from year-end levels. The decrease in accounts receivable largely results from continued improvement in accounts receivable collections worldwide. The decline in inventories reflects the company's continuing efforts to improve management of inventories, particularly personal computer inventories. - 11 - Financial Condition - (continued) - --------------------------------- Current liabilities declined $.7 billion from December 31, 1994, due to a decrease in accounts payable and accruals of $2.7 billion, offset by increases in taxes of $.3 billion and short-term debt of $1.7 billion. The decrease in accounts payable and accruals relates to the normal seasonal decline in accounts payable from their year-end levels, as well as lower restructuring accrual balances resulting from implementation of the company's restructuring programs. The increase in taxes payable results from the improvement in earnings, as well as the impact of currency fluctuations on these balances from December 31, 1994. The increase in short-term debt is attributable to the reclassification of long-term debt current maturities to short-term, as well as the effect of currency on these balances. Investments - ----------- The company's capital expenditures for plant, rental machines and other property were approximately $1.7 billion for the first half of 1995, an increase of $.5 billion from the comparable 1994 period. In addition to software development expense included in research, development and engineering expense, the company capitalized $.5 billion of software costs during the first half of 1995, down $.1 billion from the comparable 1994 period. Amortization of capitalized software costs amounted to $.8 billion in the first half of 1995 and $1.1 billion for the comparable 1994 period (including $.3 billion in accelerated amortization resulting from the software amortization change implemented in the first quarter of 1994). Long-Term Debt and Equity - ------------------------- Long-term debt was $11.7 billion at June 30, 1995, a decrease of $.8 billion from year-end 1994. Other non-current liabilities at $14.3 billion increased $.3 billion from December 31, 1994, principally the result of the currency impact of a weaker U.S. dollar versus the majority of worldwide currencies. Stockholders' equity increased from $23.4 billion at December 31, 1994 to $24.8 billion as a result of increases in net retained earnings of $1.1 billion, and equity translation adjustments of $1.3 billion due to the majority of worldwide currencies strengthening versus the U.S. dollar during the period. Preferred and common stock balances declined $1.0 billion due to implementation of the stock buyback programs announced in January of 1995. - 12 - Financial Condition - (continued) - --------------------------------- Cash Flow - ---------- (Dollars in millions) Six Months Ended June 30 _________________ 1995 1994 _______ _______ Net cash provide from (used in): Operating activities $ 4,642 $ 4,511 Investment activities 91 180 Financing activities (3,194) (3,004) Effect of exchange rate changes on cash and cash equivalents 432 (167) _______ _______ Net change in cash and cash equivalents $ 1,971 $ 1,520 For the six months ended June 30, 1995, the company had an overall net increase in cash and cash equivalents of $2.0 billion compared to a net increase of $1.5 billion for the same period in 1994. Net cash provided from operating activities was $4.6 billion for the first six months of 1995, versus $4.4 billion in the comparable 1994 period. The period-to-period improvement in cash flow from operations is mainly driven by improvement in net earnings and lower accounts receivable balances, offset by a decrease in liabilities resulting from implementation of the company's restructuring plans. Net cash provided from investing activities was $.1 billion for the first six months of 1995, compared to a net source of funds in the amount of $.2 billion in the same period of 1994. The decreased cash flow from investing activities compared to the 1994 period is attributable to the proceeds derived from the sale of FSC in March 1994, partially offset by cash inflows during the first half of 1995 from the sale of marketable securities. Net cash used in financing activities amounted to $3.2 billion for the six months ended June 30, 1995, an increase of $.2 billion from the comparable 1994 period, principally the result of the company's buyback of preferred and common stock on the open market, partially offset by decreased net cash outflows relative to the company's outstanding debt. Liquidity - --------- At June 30, 1995, the company had a net balance of $1.0 billion in assets under management from the securitization of lease and trade receivables. - 13 - Financial Condition - (continued) - --------------------------------- On January 11, 1995, the company commenced a tender offer to purchase for cash any and all of the Series A 7 1/2 percent preferred stock represented by 44.6 million outstanding depositary shares for a price of $25.00 net per depositary share. Through February 8, 1995, the company purchased 34.1 million depositary shares under this offer. On February 28, 1995, the company's Board of Directors authorized IBM to repurchase any of its remaining outstanding Series A 7 1/2 percent preferred stock depositary shares from time to time in the open market and in private transactions, depending on market conditions. During the first half of 1995, the company repurchased 57 thousand of its preferred depositary shares under this authorization. As of June 30, 1995, 10.4 million depositary shares remained outstanding. On January 31, 1995, the Board of Directors authorized the company to repurchase up to $2.5 billion of IBM common shares on the open market. The company plans to purchase the shares from time to time, depending on market conditions. Through June 30, 1995, the company repurchased approximately 21.3 million shares of IBM common stock for approximately $1.9 billion under this program. Part II - Other Information ---------------------------- ITEM 4. Submission of Matters to a Vote of Security Holders ----------------------------------------------------------- The Annual Meeting of Stockholders of International Business Machines Corporation was held on April 25, 1995. (1) Each of the eleven nominees to the Board of Directors was elected for a one-year term by the stockholders: DIRECTOR FOR WITHHELD H. Brown 468,055,387 4,234,974 F. Gerber 468,409,862 3,880,499 L. V. Gerstner, Jr. 468,462,105 3,828,256 N. O. Keohane 468,099,683 4,190,678 C. F. Knight 468,608,134 3,682,227 L. A. Noto 468,472,151 3,818,210 J. B. Slaughter 468,173,534 4,116,827 A. Trotman 468,539,026 3,751,335 L. C. van Wachem 468,563,244 3,727,117 C. M. Vest 468,255,489 4,034,872 J. B. York 468,394,409 3,895,952 - 14 - Part II - Other Information ---------------------------- ITEM 4. Submission of Matters to a Vote of Security Holders - (continued) ------------------------------------------------------------------------- (2) The appointment of Price Waterhouse LLP as independent auditors of the company was ratified: For 457,452,313 Not For 2,238,299 Abstain 12,599,749 Total 472,290,361 (3) The stockholders approved the adoption of the IBM 1995 Employees Stock Purchase Plan: For 438,146,354 Not For 18,839,447 Abstain 15,304,560 Total 472,290,361 (4) The stockholders approved the adoption of the IBM Non- Employee Directors Stock Option Plan to replace annual stock awards: For 377,138,880 Not For 76,523,251 Abstain 18,628,230 Total 472,290,361 (5) The stockholders approved annual incentive compensation terms for certain executives: For 426,210,225 Not For 28,657,382 Abstain 17,422,754 Total 472,290,361 (6) The stockholders approved long-term performance incentive compensation terms for certain executives: For 432,402,895 Not For 22,655,103 Abstain 17,232,363 Total 472,290,361 (7). A. The stockholders defeated a proposal recommending that IBM affirm its political non-partisanship: For 25,960,870 Not For 330,905,767 Abstain 25,002,114 Broker No Vote 90,421,610 Total 472,290,361 - 15 - Part II - Other Information ---------------------------- ITEM 4. Submission of Matters to a Vote of Security Holders - (continued) ------------------------------------------------------------------------- B. The stockholders defeated a proposal recommending the elimination of awards or bonuses upon completion of service: For 33,121,847 Not For 330,274,469 Abstain 18,282,237 Broker No Vote 90,611,808 Total 472,290,361 C. The stockholders defeated a proposal recommending variable executive and other compensation: For 26,716,273 Not For 338,714,799 Abstain 16,447,835 Broker No Vote 90,411,454 Total 472,290,361 D. The stockholders defeated a proposal recommending the withdrawal of retirement plan for non-employee directors: For 94,553,375 Not For 269,437,780 Abstain 17,859,766 Broker no Vote 90,439,440 Total 472,290,361 E. The stockholders defeated a proposal recommending stock payments to non-employee directors: For 26,586,435 Not For 336,349,803 Abstain 18,933,764 Broker No Vote 90,420,359 Total 472,290,361 ITEM 5. Other Information - ------------------------- On June 5, 1995, IBM announced plans to make a tender offer for all of the outstanding common shares and preferred share purchase rights of Lotus Development Corporation, a leading software developer located in Cambridge, Massachusetts. The tender offer was at a price of $60 per common share, and was initiated by a subsidiary of IBM, White Acquisition Corporation, which was created for this transaction. - 16 - ITEM 5. Other Information - (continued) - --------------------------------------- On June 12, 1995, IBM and Lotus Development Corporation announced a definitive merger agreement under which IBM would pay $64 per Lotus share in cash for all Lotus' outstanding shares and preferred share purchase rights. The transaction has a total equity value of approximately $3.5 billion. IBM financed the offer from its approximately $10 billion in cash on hand. On July 5, 1995, IBM announced that it successfully completed its tender offer to acquire the common stock of Lotus Development Corporation at $64 per share. Approximately 97 percent of the 47.4 million outstanding Lotus shares had been accepted for payment following completion of the tender offer on July 3. Under the terms of the merger, each share which was not tendered pursuant to the tender offer was converted into the right to receive $64 in cash. The financial results of the Lotus Development Corporation when consolidated will not have a material effect on IBM's results or financial position. However, this acquisition will result in a significant one-time, non-cash charge against IBM's earnings. The charge will involve accounting writedowns of the amounts to be assigned to research and development of Lotus software under development. The charge will be taken in the third quarter of 1995. The specific amount of the charge cannot be determined at this time based on currently available information. However, the company expects that the charge will have a significant effect on net earnings of IBM in the third quarter of 1995, and on net earnings for the year. On July 25, 1995, the company announced that Cathleen Black, president and chief executive officer, Newspaper Association of America, had been elected to the company's Board of Directors. ITEM 6 (a). Exhibits - -------------------- Exhibit Number 11 Statement re: computation of per share earnings. 23 The company's proxy statement dated March 14, 1995, containing the full text of the proposals referred to in Item 4, which was previously filed electronically, is hereby incorporated by reference. 99 Supplemental Consolidated Statement of Operations schedule. ITEM 6 (b). Reports on Form 8-K - -------------------------------- No reports on Form 8-K were filed during the second quarter of 1995. - 17 - SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. International Business Machines Corporation ___________________________________________ (Registrant) Date: August 3, 1995 _____________________ By: J. B. York ___________________________________________ J. B. York Senior Vice President and Chief Financial Officer * RISC System/6000, Application System/400, and System/390 are trademarks or registered trademarks of the International Business Machines Corporation. - 18 - EX-11 2 EXHIBIT 11 COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE UNDER TREASURY STOCK METHOD SET FORTH IN ACCOUNTING PRINCIPLES BOARD OPINION NO. 15 For Quarter Ended ___________________________________ June 30, 1995 June 30, 1994 _____________ _____________ Number of shares on which earnings per share is based: Average outstanding during period 575,354,667 584,041,605 Add - Incremental shares under stock option and stock purchase plans 8,582,886 3,432,312 - Incremental shares related to 5 3/4% CGI convertible bonds 7,669,727 7,715,388 ___________ ___________ Number of shares on which fully diluted earnings per share is based 591,607,280 595,189,305 =========== =========== Net earnings available to common shareholders (millions) $ 1,711 $ 668 - Net earnings effect of interest on 5 3/4% CGI convertible bonds (millions) 5 5 ___________ ___________ Net earnings on which fully diluted earnings per share is based (millions) $ 1,716 $ 673 =========== =========== Fully diluted earnings per share $ 2.90 $ 1.13 Published earnings per share $ 2.97 $ 1.14 - 19 - COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE UNDER TREASURY STOCK METHOD SET FORTH IN ACCOUNTING PRINCIPLES BOARD OPINION NO. 15 - (CONTINUED) For Six Months Ended ______________________________ June 30, 1995 June 30, 1994 _____________ _____________ Number of shares on which earnings per share is based: Average outstanding during period 580,290,595 583,054,388 Add - Incremental shares under stock option and stock purchase plans 7,806,924 2,696,239 - Incremental shares related to 5 3/4% CGI convertible bonds 7,684,947 7,715,388 ____________ ____________ Number of shares on which fully diluted earnings per share is based 595,782,466 593,466,015 ============ ============ Net earnings available to common shareholders (millions) $ 2,953 $ 1,038 - Net earnings effect of interest on 5 3/4% CGI convertible bonds (millions) 9 9 ____________ ____________ Net earnings on which fully diluted earnings per share is based (millions) $ 2,962 $ 1,047 ============ ============ Fully diluted earnings per share $ 4.97 $ 1.76 Published earnings per share $ 5.09 $ 1.78 - 20 - EX-99 3 EXHIBIT 99 INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF OPERATIONS(1) SUPPLEMENTAL SCHEDULED (UNAUDITED)
(Dollars in millions) Three Months Ended Six Months Ended June 30 June 30 ___________________ ____________________ 1995 1994 1995 1994 Revenue: _______ _______ _______ _______ Hardware sales $ 8,659 $ 7,695 $16,386 $13,963 Software 3,072 2,726 5,945 5,309 Services 3,041 2,293 5,486 4,128 Maintenance 1,877 1,796 3,698 3,564 Rentals and financing 882 841 1,751 1,760 _______ _______ _______ ________ Total revenue 17,531 15,351 33,266 28,724 Cost: Hardware sales 5,190 5,137 9,985 9,517 Software 1,066 1,021 2,071 1,985 Services 2,386 1,844 4,360 3,400 Maintenance 868 904 1,768 1,775 Rentals and financing 390 341 787 707 _______ _______ _______ ________ Total Cost 9,900 9,247 18,971 17,384 _______ _______ _______ ________ Gross profit 7,631 6,104 14,295 11,340 Operating expenses: Selling, general and administrative 3,883 3,935 7,516 7,466 Research, development and engineering 974 1,091 1,887 2,192 _______ _______ _______ ________ Total operating expenses 4,857 5,026 9,403 9,658 Operating income 2,774 1,078 4,892 1,682 Other Income, principally interest 238 479 484 887 Interest expense 188 364 368 777 _______ _______ _______ ________ Earnings before income taxes 2,824 1,193 5,008 1,792 Income tax provision 1,108 504 2,003 768 _______ _______ _______ ________ Net earnings 1,716 689 3,005 1,024 Preferred stock dividends and transaction costs 5 21 52 42 _______ _______ _______ ________ Net earnings applicable to common shareholders $ 1,711 $ 668 $ 2,953 $ 982 ======= ======= ======= ======= Net earning per share of common stock $ 2.97 $ 1.14 $ 5.09 $ 1.68 Average number of common shares outstanding (millions) 575.4 584.0 580.3 583.1
(1) Supplemental information provided for comparative purposes. 1994 excludes effects of the sale of FSC and writedown of software. - 21 - EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM IBM CORPORATION'S FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 6-MOS DEC-31-1995 JUN-30-1995 9,893 636 13,326 0 6,162 41,701 45,605 28,761 81,601 28,529 0 7,195 0 253 17,398 81,601 16,386 33,266 9,985 18,971 9,403 0 368 5,008 2,003 3,005 0 0 0 3,005 5.09 4.97
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