-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LnSDjrZMSgYesaTGEYdMR5sbEJEwKwsuQofmYMronpAJAE1gVze7yQGYE1Un1KWW KpgRl8+9Iqtx83+17aknHQ== 0001005477-98-003153.txt : 19981116 0001005477-98-003153.hdr.sgml : 19981116 ACCESSION NUMBER: 0001005477-98-003153 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 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: SEC FILE NUMBER: 001-02360 FILM NUMBER: 98747141 BUSINESS ADDRESS: STREET 1: 1 NEW ORCHARD ROAD CITY: ARMONK STATE: NY ZIP: 10504- BUSINESS PHONE: 9144991900 MAIL ADDRESS: STREET 1: ONE NEW ORCHARD RD CITY: ARMONK STATE: NY ZIP: 10504 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 F O R M 1 0 - Q QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 1998 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) 914-499-1900 ----------------------------- (Registrant's telephone number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section l3 or l5(d) of the Securities Exchange Act of 1934 during the preceding l2 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES |X| NO |_| The registrant has 922,851,792 shares of common stock outstanding at September 30, 1998. INDEX Page ---- Part I - Financial Information: Item 1. Consolidated Financial Statements Consolidated Statement of Earnings for the three and nine months ended September 30, 1998 and 1997 ..................... 1 Consolidated Statement of Financial Position at September 30, 1998 and December 31, 1997 ..................... 3 Consolidated Statement of Cash Flows for the nine months ended September 30, 1998 and 1997 ............................ 5 Notes to Consolidated Financial Statements ..................... 6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition ........... 6 Part II - Other Information .......................................... 16 ITEM 1. INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED) (Dollars in millions except Three Months Ended Nine Months Ended per share amounts) September 30 September 30 ------------------- -------------------- 1998 1997 1998 1997 -------- -------- -------- -------- Revenue: Hardware sales $ 8,700 $ 8,345 $ 23,343 $ 24,722 Services 5,771 4,709 16,382 13,416 Software 3,175 3,039 9,421 9,073 Maintenance 1,449 1,574 4,405 4,809 Rentals and financing 1,000 938 2,985 2,765 -------- -------- -------- -------- Total revenue 20,095 18,605 56,536 54,785 Cost: Hardware sales 5,936 5,523 16,279 16,326 Services 4,541 3,756 12,871 10,717 Software 805 904 2,330 2,723 Maintenance 770 838 2,293 2,564 Rentals and financing 576 486 1,700 1,364 -------- -------- -------- -------- Total cost 12,628 11,507 35,473 33,694 -------- -------- -------- -------- Gross profit 7,467 7,098 21,063 21,091 Operating expenses: Selling, general and 4,057 3,932 11,588 11,574 administrative Research, development and engineering 1,240 1,162 3,639 3,452 -------- -------- -------- -------- Total operating expenses 5,297 5,094 15,227 15,026 Operating income 2,170 2,004 5,836 6,065 Other income, principally interest 122 162 402 484 Interest expense 160 183 500 534 -------- -------- -------- -------- Earnings before income taxes 2,132 1,983 5,738 6,015 Income tax provision 638 624 1,756 2,015 -------- -------- -------- -------- Net earnings 1,494 1,359 3,982 4,000 Preferred stock dividends 5 5 15 15 -------- -------- -------- -------- Net earnings applicable to common shareholders $ 1,489 $ 1,354 $ 3,967 $ 3,985 ======== ======== ======== ======== -1- INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF EARNINGS - (continued) (UNAUDITED) Three Months Ended Nine Months Ended September 30 September 30 ------------------- -------------------- 1998 1997 1998 1997 ------------------- -------------------- Net earnings per share of common stock - basic $ 1.60 $ 1.38 $ 4.22 $ 4.03 Net earnings per share of common stock - assuming dilution $ 1.56 $ 1.35 $ 4.11 $ 3.91 Average number of common shares outstanding: (millions) Basic 928.4 978.0 939.4 989.4 Diluted 954.5 1,005.2 965.5 1,019.2 Cash dividends per common share $ .22 $ .20 $ .64 $ .575 (The accompanying notes are an integral part of the financial statements.) -2- INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION (UNAUDITED) ASSETS
At September 30 At December 31 (Dollars in millions) 1998 1997* --------------- -------------- Current assets: Cash and cash equivalents $ 5,553 $ 7,106 Marketable securities - at cost, which approximates market 316 447 Notes and accounts receivable - net of allowances 17,682 18,106 Sales-type leases receivable 5,869 5,720 Inventories, at lower of average cost or market Finished goods 1,194 1,090 Work in process and raw materials 4,354 4,049 -------- -------- Total inventories 5,548 5,139 Prepaid expenses and other current assets 3,834 3,900 -------- -------- Total current assets 38,802 40,418 Plant, rental machines and other property 43,781 42,133 Less: Accumulated depreciation 24,776 23,786 -------- -------- Plant, rental machines and other property - net 19,005 18,347 Software, less accumulated amortization (1998, $12,799; 1997, $12,610) 645 819 Investments and sundry assets 21,267 21,915 -------- -------- Total assets $ 79,719 $ 81,499 ======== ========
* Reclassified to conform to 1998 presentation. (The accompanying notes are an integral part of the financial statements.) -3- INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION - (CONTINUED) (UNAUDITED) LIABILITIES AND STOCKHOLDERS' EQUITY (Dollars in millions except At September 30 At December 31 per share amounts) 1998 1997* --------------- -------------- Current liabilities: Taxes $ 1,790 $ 2,381 Accounts payable and accruals 16,485 17,896 Short-term debt 13,237 13,230 -------- -------- Total current liabilities 31,512 33,507 Long-term debt 15,239 13,696 Other liabilities 12,889 12,993 Deferred income taxes 1,444 1,487 -------- -------- Total liabilities 61,084 61,683 Stockholders' equity: Preferred stock - par value $.01 per share 252 252 Shares authorized: 150,000,000 Shares issued: 1998 - 2,597,261 1997 - 2,597,261 Common stock - par value $.50 per share 9,804 8,601 Shares authorized: 1,875,000,000 Shares issued: 1998 - 980,187,836 1997 - 969,015,351 Retained earnings 14,306 11,010 Treasury stock - at cost (5,778) (86) Shares: 1998 - 47,336,044 1997 - 923,955 Employee benefits trust - at cost (860) (860) Shares: 1998 - 10,000,000 1997 - 10,000,000 Gains and losses not affecting retained earnings 911 899 -------- -------- Total stockholders' equity 18,635 19,816 -------- -------- Total liabilities and stockholders' equity $ 79,719 $ 81,499 ======== ======== * Reclassified to conform to 1998 presentation. (The accompanying notes are an integral part of the financial statements.) -4- INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30: (UNAUDITED) (Dollars in millions) 1998 1997 -------- ------- Cash flow from operating activities: Net earnings $ 3,982 $ 4,000 Adjustments to reconcile net earnings to cash provided from operating activities: Effect of restructuring charges (257) (317) Depreciation 3,246 2,818 Amortization of software 401 768 Gain on disposition of fixed and other assets (156) (163) Changes in operating assets and liabilities (675) (2,015) -------- ------- Net cash provided from operating activities 6,541 5,091 -------- ------- Cash flow from investing activities: Payments for plant, rental machines and other property, net of proceeds (3,975) (3,875) Investment in software (180) (227) Purchases of marketable securities and other investments (1,532) (1,244) Proceeds from marketable securities and other investments 1,201 910 -------- ------- Net cash used in investment activities (4,486) (4,436) -------- ------- Cash flow from financing activities: Proceeds from new debt 6,049 6,969 Payments to settle debt (4,053) (2,920) Short-term borrowings less than 90 days - net (246) (1,274) Common stock transactions - net (4,830) (4,476) Cash dividends paid (623) (584) -------- ------- Net cash used in financing activities (3,703) (2,285) -------- ------- Effect of exchange rate changes on cash and cash equivalents 95 (131) -------- ------- Net change in cash and cash equivalents (1,553) (1,761) Cash and cash equivalents at January 1 7,106 7,687 -------- ------- Cash and cash equivalents at September 30 $ 5,553 $ 5,926 ======== ======= (The accompanying notes are an integral part of the financial statements.) -5- Notes to Consolidated Financial Statements 1. In the opinion of the management of International Business Machines Corporation (the company), all adjustments necessary to a fair statement of the results for the unaudited three and nine month periods have been made. 2. The gains and losses not affecting retained earnings line of stockholders' equity is comprised of foreign currency translation adjustments and unrealized gains and losses on marketable securities. Net earnings and gains and losses not affecting retained earnings amounted to $1,704 million and $999 million for the three month periods ended September 30, 1998 and 1997, respectively. The amounts for the nine month periods ended September 30, 1998 and 1997 were $3,994 million and $2,835 million, respectively. 3. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivative instruments. It requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. This statement is effective for fiscal years beginning after June 15, 1999, although early adoption is permitted. Management is in the process of determining the impacts to the company's financial statements as a result of the adoption of this standard. 4. Subsequent Event: On October 27, 1998, the Board of Directors authorized the company to repurchase up to an additional $3.5 billion of IBM common stock shares. The company plans to buy shares on the open market from time-to-time, depending on market conditions. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 The company's third-quarter results indicate that its business has accelerated significantly during the third quarter with strong revenue and earnings growth across nearly all parts of its product line. There was revenue growth across all server products, ongoing strength in services and software businesses, good improvement in the personal computer unit and strong performance in Europe and North America. The company continued to invest for long-term growth through the implementation of new technologies like silicon germanium and silicon on insulator that yield faster micro processor speeds at lower costs and power requirements, and investments in capital expenditures for strategic outsourcing and hard disk drive capacity. The company increased some expenses to extend its leadership in e-business and its presence in important software segments like system management, data management and data mining. At the same time, the company's business was affected by continued weakness in Asia/Pacific and Latin America, and its semiconductor business continued to be impacted by a prolonged, industry-wide downturn in memory chip prices. The company is exploring various alternatives to mitigate the impacts of this downturn. These alternatives include among other actions, realigning alliance structures, rebalancing sources of supply and redirecting product focus. -6- While the company has momentum going into the fourth quarter, there are a number of significant short-term challenges facing the company, including an uncertain global economic environment, ongoing weakness in some parts of Asia and Latin America, and continued price pressure in semiconductors. Over the longer term, the company believes it is well positioned to meet its customers demand for integrated products and services to solve their business needs. The company is maintaining its focus on cost, expense, improving the competitiveness of its products and delivering consistent financial results. Results of Operations (Dollars in millions Three Months Ended Nine Months Ended except per share amounts) September 30 September 30 ------------------- ------------------- 1998 1997 1998 1997 -------- -------- -------- -------- Revenue $ 20,095 $ 18,605 $ 56,536 $ 54,785 Cost 12,628 11,507 35,473 33,694 -------- -------- -------- -------- Gross profit $ 7,467 $ 7,098 $ 21,063 $ 21,091 Gross profit margin 37.2% 38.2% 37.3% 38.5% Net earnings $ 1,494 $ 1,359 $ 3,982 $ 4,000 Net earnings per diluted common share $ 1.56 $ 1.35 $ 4.11 $ 3.91 As a result of the company's share repurchase program, the average number of common shares outstanding were lower by 49.6 million to 928.4 million shares in the third quarter and by 50.0 million to 939.4 million shares on a nine months basis versus comparable periods in 1997. Revenue for the three months ended September 30, 1998 increased 8.0 percent as reported and about 11 percent on a constant currency basis. Services revenue growth remained strong while software continued to display improved year to year growth dynamics. Hardware sales increased as a result of strong acceptance of the new G5 models of System/390 and improved performance of personal computers. These improvements were partially offset by falling revenue from semiconductors, which will continue. For the nine months ended September 30, 1998, revenue increased 3.2 percent as reported and approximately 7 percent on a constant currency basis versus last year. The increase was primarily due to strong growth in services and higher revenue from software offerings, partially offset by lower hardware sales revenue from personal computers. On an as-reported basis, third-quarter revenue in the United States was $9.2 billion, an increase of 15.1 percent from the same period of 1997. Revenue from Europe/Middle East/Africa (EMEA) grew 16.4 percent to $6.1 billion and revenue from Canada increased 9.2 percent to $821 million. Asia-Pacific revenue was $3.2 billion, a decline of 15.6 percent. Revenue from Latin America totaled $840 million, a decrease of 5.8 percent compared with the third quarter of 1997. -7- Results of Operations - (continued) Excluding the effects of currency translation, Asia-Pacific declined 2 percent, EMEA revenue grew 15 percent, Canada increased 19 percent and Latin America declined 3 percent, versus third-quarter 1997. The overall gross profit margin for the three months ended September 30, 1998 was 37.2 percent or 1.0 point lower than the comparable period last year. The decline on a year-to-year basis is consistent with the first half of 1998 and continues to reflect the changing mix of the company's businesses which tends to lower the overall gross profit margin. For the nine months ended September 30, 1998, overall gross profit margin of 37.3 percent was down 1.2 points versus last year. Total expenses increased 4.3 percent compared with last year's third quarter. The company's expense-to-revenue ratio improved 1.0 point versus last year. The company's tax rate was 30.0 percent in the third quarter compared with 31.5 percent in the year-earlier period as the company continued to benefit from increased profit generation in markets with lower effective tax rates. Hardware Sales (Dollars in millions) Three Months Ended Nine Months Ended September 30 September 30 ------------------- ------------------- 1998 1997 1998 1997 -------- -------- -------- -------- Total revenue $ 8,700 $ 8,345 $ 23,343 $ 24,722 Total cost 5,936 5,523 16,279 16,326 -------- -------- -------- -------- Gross profit $ 2,764 $ 2,822 $ 7,064 $ 8,396 Gross profit margin 31.8% 33.8% 30.3% 34.0% Revenue from hardware sales increased 4.2 percent and declined 5.6 percent for the third quarter and first nine months of 1998, respectively, when compared to the same periods in 1997. The third-quarter and first-nine months results were negatively affected by approximately 2 and 3 percentage points, respectively, from currency in 1998. The hardware sales revenue increase was due to the strong performance of the new G5 model of the System/390. MIPS (millions of instructions per second) more than doubled over the third quarter of last year and revenue grew by double digits despite weakness in Asia. In addition, AS/400 and RS/6000 server revenue grew year over year, as the new Northstar PowerPC chip was introduced into both platforms for improved performance. Personal computer revenue showed strong growth versus the first and second quarters of 1998 and was flat when compared to the third quarter of 1997. AS/400 revenue increased and personal computers, RS/6000 and System/390 revenue decreased on a nine months basis when compared to the same period of last year. -8- Results of Operations - (continued) Revenue from storage products increased on both a third-quarter and nine months basis when compared with the year-earlier periods, due primarily to strong sales of hard disk drives, partially offset by lower revenue for high-end storage systems, which experienced a significant decline in Asia. Semiconductor revenue declined in the third quarter and increased slightly for the first nine months of 1998, when compared to the same periods in 1997. The decline in the third quarter was primarily due to lower DRAM prices and an Asian-related slow down in demand for ASICS products. The company expects this trend to continue for the short term. Hardware sales gross profit for the third quarter and first nine months of 1998 decreased 2.1 percent and 15.9 percent, respectively, from comparable periods in 1997. The hardware gross profit margin decreased 2.0 points and 3.7 points, respectively, from the prior year. These decreases were primarily driven by pricing pressures associated with personal computers, hard disk drive and memory chip prices when compared to the same periods in 1997. These declines were partially offset by improved margins for AS/400 and the mix of revenue to more System/390 products which have a higher margin. In the third quarter of 1998 the personal computer margins improved over the same period in 1997. Services Other Than Maintenance (Dollars in millions) Three Months Ended Nine Months Ended September 30 September 30 ------------------- ------------------- 1998 1997 1998 1997 -------- -------- -------- -------- Total revenue $ 5,771 $ 4,709 $ 16,382 $ 13,416 Total cost 4,541 3,756 12,871 10,717 -------- -------- -------- -------- Gross profit $ 1,230 $ 953 $ 3,511 $ 2,699 Gross profit margin 21.3% 20.3% 21.4% 20.1% Services revenue increased 22.6 percent and 22.1 percent, respectively, in the third quarter and first nine months of 1998, versus the same periods in 1997. On a constant currency basis, revenue was negatively affected by approximately 3 and 4 percentage points, respectively, in the third quarter and first nine months of 1998. The revenue increases were driven by continued strong growth in all categories of service offerings. In the third quarter, new contract signings amounted to $10.0 billion. Most of these contracts are for strategic outsourcing agreements and involve a full spectrum of the company's services and product offerings. Services gross profit dollars increased in the third quarter and first nine months of 1998 by 29.1 percent and 30.0 percent, respectively, when compared to year-ago periods. The positive gross profit margin trend seen in the first half of the year continued in the third quarter as margin improved 1.0 point versus last year due to improved utilization rates and contract management, primarily in the United States. -9- Results of Operations - (continued) Software (Dollars in millions) Three Months Ended Nine Months Ended September 30 September 30 ------------------- ------------------- 1998 1997 1998 1997 -------- -------- -------- -------- Total revenue $ 3,175 $ 3,039 $ 9,421 $ 9,073 Total cost 805 904 2,330 2,723 -------- -------- -------- -------- Gross profit $ 2,370 $ 2,135 $ 7,091 $ 6,350 Gross profit margin 74.6% 70.3% 75.3% 70.0% Revenue from software for the third quarter and first nine months of 1998 increased 4.5 percent and 3.8 percent, respectively, over comparable periods in 1997. The third-quarter and first-nine months results were negatively affected by approximately 3 and 4 percentage points, respectively, from currency in 1998. The revenue increases are being driven by growth in the company's middleware products consisting of data management, transaction processing, Tivoli systems management, and messaging and collaboration. In addition, operating systems revenue also showed growth, primarily as a result of strong AS/400 revenue. Software gross profit dollars for the third quarter and first nine months of 1998 increased 11.0 and 11.7 percent, respectively, versus the same periods in 1997. Software gross profit margins increased 4.3 percentage points and 5.3 percentage points, respectively, for the third quarter and first nine months of 1998, when compared to the same periods of last year. The company continues to see an improved margin due to lower levels of amortization associated with deferred development costs. Maintenance (Dollars in millions) Three Months Ended Nine Months Ended September 30 September 30 ------------------- ------------------ 1998 1997 1998 1997 -------- -------- -------- ------- Total revenue $ 1,449 $ 1,574 $ 4,405 $ 4,809 Total cost 770 838 2,293 2,564 -------- -------- -------- ------- Gross profit $ 679 $ 736 $ 2,112 $ 2,245 Gross profit margin 46.8% 46.8% 47.9% 46.7% Maintenance revenue for the third quarter and first nine months of 1998 decreased 8.0 percent and 8.4 percent, respectively, from comparable periods in 1997. The third-quarter and first-nine months revenue was negatively affected by approximately 4 percentage points, respectively, from currency in 1998. Maintenance gross profit dollars decreased 7.7 percent and 5.9 percent, respectively, in the third quarter and first nine months of 1998, when compared to the same periods of 1997. While maintenance revenue continues to be impacted by aggressive pricing dynamics, the gross profit margin has displayed a positive trend in the first half of 1998 and was flat in the third quarter versus the same periods of 1997, due to effective cost management actions. -10- Results of Operations - (continued) Rentals and financing (Dollars in millions) Three Months Ended Nine Months Ended September 30 September 30 ------------------- ------------------ 1998 1997 1998 1997 -------- -------- -------- ------- Total revenue $ 1,000 $ 938 $ 2,985 $ 2,765 Total cost 576 486 1,700 1,364 -------- -------- -------- ------- Gross profit $ 424 $ 452 $ 1,285 $ 1,401 Gross profit margin 42.4% 48.2% 43.1% 50.7% Revenue from rentals and financing increased 6.7 percent and 8.0 percent, respectively, for the third quarter and first nine months of 1998, versus comparable periods in 1997. The third-quarter and first-nine months revenue was negatively affected by approximately 3 percentage points, respectively, from currency in 1997. The increases in revenue were driven by higher levels of operating leases on low-end products. Rentals and financing gross profit dollars decreased 6.2 percent and 8.3 percent, respectively, for the third quarter and first nine months of 1998, when compared to the same periods of the prior year. The decline in gross profit dollars and margin were principally due to a trend towards financing a greater amount of low-end products and faster growth in the more competitive U.S. market. Expenses (Dollars in millions) Three Months Ended Nine Months Ended September 30 September 30 ------------------- ------------------ 1998 1997 1998 1997 -------- -------- -------- ------- Selling, general and administrative $ 4,057 $ 3,932 $ 11,588 $11,574 Percentage of revenue 20.2% 21.1% 20.5% 21.1% Research, development and engineering $ 1,240 $ 1,162 $ 3,639 $ 3,452 Percentage of revenue 6.2% 6.2% 6.4% 6.3% Selling, general and administrative expense for the third quarter increased 3.1 percent and was essentially flat for the first nine months of 1998, respectively, compared to the same periods in 1997. Currency had a benefit of about 3 percentage points for the third quarter and first nine months of 1998 versus the same periods in 1997. The company continues to aggressively manage infrastructure expense and its overall portfolio to allow for investment in growth segments of the business. -11- Results of Operations - (continued) Research, development and engineering expense increased 6.7 percent and 5.4 percent, respectively, for the third quarter and first nine months of 1998, when compared to the same periods of 1997. The increase in the third quarter reflects the company's continued investments in high-growth opportunities like e-business, Tivoli Systems, Java and hard disk drives. The increase in the first nine months of 1998 was primarily due to the charges and operating expenses associated with the acquisition of Software Artistry, Inc. and CommQuest Technologies in the first quarter of 1998, as well as increased spending on other high-growth opportunities. Interest on total borrowings of the company and its subsidiaries, which includes interest expense and interest costs associated with rentals and financing, amounted to $377 million and $1,172 million for the third quarter and first nine months of 1998, respectively. Of these amounts, $9 million for the third quarter and $20 million for the first nine months were capitalized. The effective tax rate for the quarter ended September 30, 1998, was 30.0 percent versus 31.5 percent for the same period in 1997. The decrease was primarily the result of the source of earnings and corresponding weighting of tax rates on a country-by-country basis, as the company continued to expand into markets with lower effective tax rates. The effective tax rate for the first nine months of 1998 was 30.6 percent, versus 33.5 percent for the same period in 1997. The 2.9 points decrease from the 1997 rate was a result of the same factors that impacted the third quarter effective tax rate. Financial Condition During 1998, the company has continued to make significant investments to fund its future growth and increase shareholder value. These include expenditures of $4.0 billion for research, development and engineering, $4.6 billion in plant, rental machines and other property and $5.3 billion for the repurchase of the company's common shares. The company had $5.9 billion in cash, cash equivalents and marketable securities at September 30, 1998. Cash Flow (Dollars in millions) Nine Months Ended September 30 ------------------ 1998 1997 ------- ------- Net cash provided from (used in): Operating activities $ 6,541 $ 5,091 Investing activities (4,486) (4,436) Financing activities (3,703) (2,285) Effect of exchange rate changes on cash and cash equivalents 95 (131) ------- ------- Net change in cash and cash equivalents $(1,553) $(1,761) -12- Financial Condition - (continued) Working Capital (Dollars in millions) At September 30 At December 31 1998 1997 --------------- -------------- Current assets $ 38,802 $ 40,418 Current liabilities 31,512 33,507 -------- -------- Working capital $ 7,290 $ 6,911 Current ratio 1.23:1 1.21:1 Current assets declined $1.6 billion from year-end 1997 with declines of $1.7 billion in cash, cash equivalents and marketable securities, and $.3 billion in accounts receivable, offset by an increase of $.4 billion in inventories. The decrease in cash, cash equivalents and marketable securities resulted primarily from the stock repurchases and capital expenditures, offset by cash generated from operations and debt financing. The decline in accounts receivable was attributable to the collection of typically higher year-end accounts receivable balances, while inventories have generally increased to meet anticipated fourth-quarter demand. Current liabilities declined $2.0 billion with declines of $1.4 billion in accounts payable and accruals (resulting primarily from seasonal declines in these balances from their normally higher year-end levels), and $.6 billion in taxes. Investments During the first nine months of 1998, the company continued to invest in its rapidly growing services business, primarily in the management of customers' information technology, as well as in manufacturing capacity for hard disk drives and microelectronics. The company's capital investment for plant, rental machines and property was $4.6 billion during the first nine months of 1998, an increase of $.1 billion from the comparable 1997 period. In addition to software development expense included in research, development and engineering expense, the company capitalized $.2 billion of software costs during the first nine months of both 1998 and 1997. Amortization of capitalized software costs amounted to $.4 billion during the first nine-months of 1998, a decline of $.4 billion from the comparable 1997 period. Investments and sundry assets were $21.3 billion at September 30, 1998, a decrease of $.6 billion from year-end 1997, resulting primarily from a decrease in non-current sales-type lease receivables and deferred tax assets. -13- Financial Condition - (continued) Debt and Equity (Dollars in millions) At September 30 At December 31 1998 1997 --------------- -------------- "Core" debt $ 2,572 $ 3,102 Global financing debt 25,904 23,824 -------- -------- Total debt $ 28,476 $ 26,926 Stockholders' equity $ 18,635 $ 19,816 Debt/capitalization 60.4% 57.6% "Core" debt/capitalization 14.9% 16.1% Global financing debt/equity 6.5:1 6.5:1 Total debt increased $1.6 billion from year-end 1997, as debt in support of growth in global financing assets increased $2.1 billion, and "core" debt declined $.5 billion. Stockholders' equity declined $1.2 billion from December 31, 1997, as the increase in the company's retained earnings was more than offset by the common share repurchases. Liquidity The company maintains a $10.0 billion committed global credit facility as part of its ongoing efforts to ensure appropriate levels of liquidity. As of September 30, 1998, $8.8 billion of this confirmed line of credit remained unused and available for future use. At September 30, 1998, the company had an outstanding balance of $1.1 billion in assets under management from the securitization of loans, leases and trade receivables. Year 2000 The "Year 2000 issue" arises because many computer hardware and software systems use only two digits to represent the year. As a result, these systems and programs may not process dates beyond 1999, which may cause errors in information or systems failures. Assessments of the potential effects of the Year 2000 issues vary markedly among different companies, governments, consultants, economists and commentators, and it is not possible to predict what the actual impact may be. Given this uncertainty, the company recognizes the need to remain vigilant and is continuing its analysis, assessment and planning for the various Year 2000 issues, across its business. With respect to its internal systems, the potential Year 2000 impacts extend beyond the company's information technology systems to its manufacturing and development systems and physical facilities. The company has been addressing these issues using the same five-part methodology it recommends to its customers: (1) Assessment and Strategy; (2) Detailed Analysis and Planning; (3) Implementation; (4) Clean Management (maintaining readiness of converted systems); and (5) Project Office Management. The company expects to complete most conversion and testing early in 1999, -14- Year 2000 - (continued) with extended system integration testing and contingency planning projects scheduled throughout 1999. Although the company believes its efforts will be successful, and does not not expect the costs of these efforts to be material, any failure or delay could result in the disruption of business and in the company incurring substantial expense. To minimize any such potential impact, the company has initiated a global contingency planning effort designed to support critical business operations. As part of its ordinary course product development efforts, the company's current product and service offerings have been designed to be Year 2000 ready. The Year 2000 readiness of the company's customers varies, and the company is actively encouraging its customers to prepare their own systems, making available a broad array of product, service and educational offerings to assist them (see the IBM Year 2000 Home Page at http://www.ibm.com/IBM/year2000/). Efforts by customers to address Year 2000 issues may absorb a substantial part of their information technology budgets in the near term, and customers may either delay or accelerate the deployment and implementation of new applications and systems. While this behavior may increase demand for certain of the company's products and services, including its Year 2000 offerings, it could also soften demand for other offerings. These events could affect the company's revenues or change its revenue patterns. The company is also in the process of assessing the Year 2000 readiness of its key suppliers, subcontractors and business partners. This project has been undertaken with a view toward assuring that the company has adequate resources for required supplies, components and complementary offerings, and the company expects to complete this project early in 1999. A failure of the company's suppliers, subcontractors and business partners to address adequately their Year 2000 readiness could affect the company's business. As part of its contingency planning efforts, the company is identifying alternate sources or strategies where necessary if significant exposures are identified. In addition, the company is aware of the potential for claims against it and other companies for damages arising from products and services that were not Year 2000 ready. The company continues to believe that any such claims against it would be without merit. Finally, the Year 2000 presents a number of other risks and uncertainties that could affect the company, including utilities failures, competition for personnel skilled in the resolution of Year 2000 issues, and the nature of government responses to the issues, among others. While the company continues to believe that the Year 2000 matters discussed above will not have a material impact on its business, financial condition or results of operations, it remains uncertain whether or to what extent the company may be affected. -15- Forward Looking and Cautionary Statements Except for the historical information and discussions contained herein, statements contained in this Form 10-Q (including statements in the Year 2000 discussion above) may constitute 'forward looking statements' within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, including the company's failure to continue to develop and market new and innovative products and services and to keep pace with technological change; competitive pressures; failure to obtain or protect intellectual property rights; the ultimate impact of the various Year 2000 issues on the company's business, financial condition or results of operations; quarterly fluctuations in revenues and volatility of stock prices; the company's ability to attract and retain key personnel; currency and customer financing risks; dependence on certain suppliers; changes in the financial or business condition of the company's distributors or resellers; the company's ability to successfully manage acquisitions and alliances; legal, political and economic changes and other risks, uncertainties and factors discussed in the company's other filings with the Securities and Exchange Commission, and in materials incorporated therein by reference, including the company's Form 10-K filed on March 30, 1998. Part II - Other Information ITEM 5. Other Information Under the terms of the registrant's By-laws, stockholders who intend to present an item of business at the 1999 annual meeting of stockholders (other than a proposal submitted for inclusion in the registrant's proxy materials) must provide notice of such business to the registrant no earlier than October 19, 1998 and no later than November 18, 1998, as set forth more fully in such By-laws. ITEM 6 (a). Exhibits Exhibit Number 3 The By-laws of IBM as amended through October 27, 1998. 11 Statement re: computation of per share earnings. 12 Statement re: computation of ratios. 27 Financial Data Schedule. ITEM 6 (b). Reports on Form 8-K A Form 8-K dated July 20, 1998 was filed with respect to the company's financial results for the period ended June 30, 1998 and included unaudited consolidated financial statements for the period ended June 30, 1998. -16- Part II - Other Information - (continued) SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. International Business Machines Corporation ------------------------------------------- (Registrant) Date: November 12, 1998 - ----------------------- By: Mark Loughridge ------------------------------------------- Mark Loughridge Vice President and Controller -17- EX-3 2 BY-LAWS BY-LAWS of INTERNATIONAL BUSINESS MACHINES CORPORATION Adopted April 29, 1958 As Amended Through October 27, 1998 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 4 SEC. 9. List of Stockholders 5 SEC. 10. Inspectors of Election 5 ARTICLE III BOARD OF DIRECTORS SEC. 1. General Powers 6 SEC. 2. Number; Qualifications; Election; Term of Office 6 SEC. 3. Place of Meetings 6 SEC. 4. First Meeting 6 SEC. 5. Regular Meetings 6 SEC. 6. Special Meetings 6 SEC. 7. Notice of Meetings 6 SEC. 8. Quorum and Manner of Acting 7 SEC 9. Organization 7 SEC. 10. Resignations 7 SEC. 11. Vacancies 7 SEC. 12. Retirement of Directors 7 -i- ARTICLE IV EXECUTIVE AND OTHER COMMITTEES SEC. 1. Executive Committee 8 SEC. 2. Powers of the Executive Committee 8 SEC. 3. Meetings of the Executive Committee 8 SEC. 4. Quorum and Manner of Acting of the Executive Committee 9 SEC. 5. Other Committees 9 SEC. 6. Changes in Committees; Resignations; Removals; Vacancies 10 ARTICLE V OFFICERS SEC. 1. Number and Qualifications 10 SEC. 2. Resignations 10 SEC. 3. Removal 11 SEC. 4. Vacancies 11 SEC. 5. Chairman of the Board 11 SEC. 6. Vice Chairman of the Board 11 SEC. 7. President 11 SEC. 8. Designated Officers 12 SEC. 9. Executive Vice Presidents, Senior Vice Presidents and Vice Presidents 12 SEC. 10. Treasurer 12 SEC. 11. Secretary 13 SEC. 12. Controller 14 SEC. 13. Compensation 14 ii ARTICLE VI CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC. SEC. 1. Execution of Contracts 14 SEC. 2. Loans 14 SEC. 3. Checks, Drafts, etc 15 SEC. 4. Deposits 15 SEC. 5. General and Special Bank Accounts 15 SEC. 6. Indemnification 15 ARTICLE VII SHARES SEC. 1. Stock Certificates 16 SEC. 2. Books of Account and Record of Stockholders 16 SEC. 3. Transfers of Stock 16 SEC. 4. Regulations 17 SEC. 5. Fixing of Record Date 17 SEC. 6. Lost, Destroyed or Mutilated Certificates 17 SEC. 7. Inspection of Records 18 SEC. 8. Auditors 18 ARTICLE VIII OFFICES SEC. 1. Principal Office 18 SEC. 2. Other Offices 18 ARTICLE IX Waiver of Notice 18 - iii - ARTICLE X Fiscal Year 19 ARTICLE XI Seal 19 ARTICLE XII Amendments 19 - iv - BY-LAWS OF INTERNATIONAL BUSINESS MACHINES CORPORATION ARTICLE I DEFINITIONS In these By-laws, and for all purposes hereof, unless there be something in the subject or context inconsistent therewith: (a) 'Corporation' shall mean International Business Machines Corporation. (b) 'Certificate of Incorporation' shall mean the restated Certificate of Incorporation as filed on May 27, 1992, together with any and all amendments and subsequent restatements thereto. (c) 'Board' shall mean the Board of Directors of the Corporation. (d) 'stockholders' shall mean the stockholders of the Corporation. (e) 'Chairman of the Board', 'Vice Chairman of the Board', 'Chairman of the Executive Committee', 'Chief Executive Officer,' 'Chief Financial Officer', 'Chief Accounting Officer', 'President', 'Executive Vice President', 'Senior Vice President', 'Vice President', 'Treasurer', 'Secretary', or 'Controller', as the case may be, shall mean the person at any given time occupying the particular office with the Corporation. ARTICLE II MEETINGS OF STOCKHOLDERS SECTION 1. Place of Meetings. Meetings of the stockholders of the Corporation shall be held at such place either within or outside the State of New York as may from time to time be fixed by the Board or specified or fixed in the notice of any such meeting. SECTION 2. Annual Meetings. The annual meeting of the stockholders of the Corporation for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held on the last Tuesday of April of each year, if not a legal holiday, or, if such day shall be a legal holiday, then on the next succeeding day not a legal holiday. If any annual meeting shall not be held on the day designated herein, or if the directors to be elected at such annual meeting shall not have been elected thereat or at any adjournment thereof, the Board shall forthwith call a special meeting of the stockholders for the election of directors to be held as soon thereafter as convenient and give notice thereof as provided in these By-laws in respect of the notice of an annual meeting of the stockholders. At such special meeting the stockholders may elect the directors and transact other business with the same force and effect as at an annual meeting of the stockholders duly called and held. SECTION 3. Special Meetings. Special meetings of the stockholders, unless otherwise provided by law, may be called at any time by the Chairman of the Board or by the Board. SECTION 4. Notice of Meetings. Notice of each meeting of the stockholders, annual or special, shall be given in the name of the Chairman of the Board, a Vice Chairman of the Board or the President or a Vice President or the Secretary. Such notice shall state the purpose or purposes for which the meeting is called and the date and hour when and the place where it is to be held. A copy thereof shall be duly delivered or transmitted 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 sixty 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. SECTION 6. Organization. At each meeting of the stockholders, the Chairman of the Board, or in the absence of the Chairman of the Board, the President, or in the absence of the Chairman of the Board and the President, a Vice Chairman of the Board, or if the Chairman of the Board, the President, and all Vice Chairmen of the Board shall be absent therefrom, an Executive Vice President, or if the Chairman of the Board, the President, all Vice Chairmen of the Board and all Executive Vice Presidents shall be absent therefrom, a Senior Vice President shall act as chairman. The Secretary, or, if the Secretary shall be absent from such meeting or unable to act, the person whom the Chairman of such meeting shall appoint secretary of such meeting shall act as secretary of such meeting and keep the minutes thereof. SECTION 7. Items of Business. The items of business at all meetings of the stockholders shall be, insofar as applicable, as follows: -- Call to order. -- Proof of notice of meeting or of waiver thereof. -- Appointment of inspectors of election, if necessary. -- A quorum being present. -- Reports. -- Election of directors. -- Other business specified in the notice of the meeting. -- Voting. -- Adjournment. Any items of business not referred to in the foregoing may be taken up at the meeting as the chairman of the meeting shall determine. No other business shall be transacted at any annual meeting of stockholders, except business as may be: (i) specified in the notice of meeting (including stockholder proposals included in the Corporation's proxy materials under Rule 14a-8 of Regulation 14A under the Securities Exchange Act of 1934), (ii) otherwise brought before the meeting by or at the direction of the Board of Directors, or (iii) a proper subject for the meeting which is timely submitted by a stockholder of the Corporation entitled to vote at such meeting who complies fully with the notice requirements set forth below. For business to be properly submitted by a stockholder before any annual meeting under subparagraph (iii) above, a stockholder must give timely notice in writing of such business to the Secretary of the Corporation. To be considered timely, a stockholder's notice must be received by the Secretary at the principal executive offices of the Corporation not less than 120 calendar days nor more than 150 calendar days before the date of the Corporation's proxy statement released to stockholders in connection with the prior year's annual meeting. However, if no annual meeting was held in the previous year, or if the date of the applicable annual meeting has been changed by more than 30 days from the date contemplated at the time of the previous year's proxy statement, a stockholder's notice must be received by the Secretary not later than 60 days before the date the Corporation commences mailing of its proxy materials in connection with the applicable annual meeting. A stockholder's notice to the Secretary to submit business to an annual meeting of stockholders shall set forth: (i) the name and address of the stockholder, (ii) the number of shares of stock held of record and beneficially by such stockholder, (iii) the name in which all such shares of stock are registered on the stock transfer books of the Corporation, (iv) a representation that the stockholder intends to appear at the meeting in person or by proxy to submit the business specified in such notice, (v) a brief description of the business desired to be submitted to the annual meeting, including the complete text of any resolutions intended to be presented at the annual meeting, and the reasons for conducting such business at the annual meeting, (vi) any personal or other material interest of the stockholder in the business to be submitted, and (vii) all other information relating to the proposed business which may be required to be disclosed under applicable law. In addition, a stockholder seeking to submit such business at the meeting shall promptly provide any other information reasonably requested by the Corporation. The chairman of the meeting shall determine all matters relating to the efficient conduct of the meeting, including, but not limited to, the items of business, as well as the maintenance of order and decorum. The chairman shall, if the facts warrant, determine and declare that any putative business was not properly brought before the meeting in accordance with the procedures prescribed by this Section 7, in which case such business shall not be transacted. Notwithstanding the foregoing provisions of this Section 7, a stockholder who seeks to have any proposal included in the Corporation's proxy materials shall comply with the requirements of Rule 14a-8 under Regulation 14A of the Securities Exchange Act of 1934, as amended. 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 (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 such stockholder or by the stockholder's attorney thereunto duly authorized and delivered or transmitted 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. ARTICLE III BOARD OF DIRECTORS SECTION 1. General Powers. The business and affairs of the Corporation shall be managed by the Board. The Board may exercise all such authority and powers of the Corporation and do all such lawful acts and things as are not by law, the Certificate of Incorporation or these By-laws, directed or required to be exercised or done by the stockholders. SECTION 2. Number; Qualifications; Election; Term of Office. The number of directors of the Corporation shall be twelve, but the number thereof may be increased to not more than twenty-five, or decreased to not less than nine, by amendment of these By-laws. The directors shall be elected at the annual meeting of the stockholders. At each meeting of the stockholders for the election of directors at which a quorum is present, the persons receiving a plurality of the votes at such election shall be elected. Each director shall hold office until the annual meeting of the stockholders which shall be held next after the election of such director and until a successor shall have been duly elected and qualified, or until death, or until the director shall have resigned as hereinafter provided in Section 10 of this Article III. SECTION 3. Place of Meetings. Meetings of the Board shall be held at such place either within or outside State of New York as may from time to time be fixed by the Board or specified or fixed in the notice of any such meeting. SECTION 4. First Meeting. The Board shall meet for the purpose of organization, the election of officers and the transaction of other business, on the same day the annual meeting of stockholders is held. Notice of such meeting need not be given. Such meeting may be held at any other time or place which shall be specified in a notice thereof given as hereinafter provided in Section 7 of this Article III. SECTION 5. Regular Meetings. Regular meetings of the Board shall be held at times and dates fixed by the Board or at such other times and dates as the Chairman of the Board shall determine and as shall be specified in the notice of such meetings. Notice of regular meetings of the Board need not be given except as otherwise required by law or these By-laws. SECTION 6. Special Meetings. Special meetings of the Board may be called by the Chairman of the Board. SECTION 7. Notice of Meetings. Notice of each special meeting of the Board (and of each regular meeting for which notice shall be required) shall be given by the Secretary as hereinafter provided in this Section 7, in which notice shall be stated the time, place and, if required by law or these By-laws, the purposes of such meeting. Notice of each such meeting shall be mailed, postage prepaid, to each director, by first-class mail, at least four days before the day on which such meeting is to be held, or shall be sent by facsimile transmission or comparable medium, or be delivered personally or by telephone, at least twenty-four hours before the time at which such meeting is to be held. Notice of any such meeting need not be given to any director who shall waive notice thereof as provided in Article IX of these By-laws. Any meeting of the Board shall be a legal meeting without notice thereof having been given, if all the directors of the Corporation then holding office shall be present thereat. SECTION 8. Quorum and Manner of Acting. A majority of the Board shall be present in person at any meeting of the Board in order to constitute a quorum for the transaction of business at such meeting. Participation in a meeting by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other shall constitute presence in person at a meeting. Except as otherwise expressly required by law or the Certificate of Incorporation and except also as specified in Section 1, Section 5, and Section 6 of Article IV, in Section 3 of Article V and in Article XII of these By-laws, the act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board. In the absence of a quorum at any meeting of the Board, a majority of the directors present thereat may adjourn such meeting from time to time until a quorum shall be present thereat. Notice of any adjourned meeting need not be given. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called. The directors shall act only as a Board and the individual directors shall have no power as such. SECTION 9. Organization. At each meeting of the Board, the Chairman of the Board, or in the case of the Chairman's absence therefrom, the President, or in the case of the President's absence therefrom, a Vice Chairman, or in the case of the absence of all such persons, another director chosen by a majority of directors present, shall act as chairman of the meeting and preside thereat. The Secretary, or if the Secretary shall be absent from such meeting, any person appointed by the chairman, shall act as secretary of the meeting and keep the minutes thereof. SECTION 10. Resignations. Any director of the Corporation may resign at any time by giving written notice of resignation to the Board or the Chairman of the Board or the Secretary. Any such resignation shall take effect at the time specified therein, or if the time when it shall become effective shall not be specified therein, then it shall take effect immediately upon its receipt; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 11. Vacancies. Any vacancy in the Board, whether arising from death, resignation, an increase in the number of directors or any other cause, may be filled by the Board. SECTION 12. Retirement of Directors. The Board may prescribe a retirement policy for directors on or after reaching a certain age, provided, however, that such retirement shall not cut short the annual term for which any director shall have been elected by the stockholders. ARTICLE IV EXECUTIVE AND OTHER COMMITTEES SECTION 1. Executive Committee. The Board, by resolution adopted by a majority of the Board, may designate not less than four of the directors then in office to constitute an Executive Committee, each member of which unless otherwise determined by resolution adopted by a majority of the whole Board, shall continue to be a member of such Committee until the annual meeting of the stockholders which shall be held next after designation as a member of such Committee or until the earlier termination as a director. The Chief Executive Officer shall always be designated as a member of the Executive Committee. The Board may by resolution appoint one member as the Chairman of the Executive Committee who shall preside at all meetings of such Committee. In the absence of said Chairman, the Chief Executive Officer shall preside at all such meetings. In the absence of both the Chairman of the Executive Committee and the Chief Executive Officer, the Chairman of the Board shall preside at all such meetings. In the absence of the Chairman of the Executive Committee and the Chief Executive Officer and the Chairman of the Board, the President shall preside at all such meetings. In the absence of all such persons, a majority of the members of the Executive Committee present shall choose a chairman to preside at such meetings. The Secretary, or if the Secretary shall be absent from such meeting, any person appointed by the chairman, shall act as secretary of the meeting and keep the minutes thereof. SECTION 2. Powers of the Executive Committee. To the extent permitted by law, the Executive Committee may exercise all the powers of the Board in the management of specified matters where such authority is delegated to it by the Board, and also, to the extent permitted by law, the Executive Committee shall have, and may exercise, all the powers of the Board in the management of the business and affairs of the Corporation (including the power to authorize the seal of the Corporation to be affixed to all papers which may require it; but excluding the power to appoint a member of the Executive Committee) in such manner as the Executive Committee shall deem to be in the best interests of the Corporation and not inconsistent with any prior specific action of the Board. An act of the Executive Committee taken within the scope of its authority shall be an act of the Board. The Executive Committee shall render in the form of minutes a report of its several acts at each regular meeting of the Board and at any other time when so directed by the Board. SECTION 3. Meetings of the Executive Committee. Regular meetings of the Executive Committee shall be held at such times, on such dates and at such places as shall be fixed by resolution adopted by a majority of the Executive Committee, of which regular meetings notice need not be given, or as shall be fixed by the Chairman of the Executive Committee or in the absence of the Chairman of the Executive Committee the Chief Executive Officer and specified in the notice of such meeting. Special meetings of the Executive Committee may be called by the Chairman of the Executive Committee or by the Chief Executive Officer. Notice of each such special meeting of the Executive Committee (and of each regular meeting for which notice shall be required), stating the time and place thereof shall be mailed, postage prepaid, to each member of the Executive Committee, by first-class mail, at least four days before the day on which such meeting is to be held, or shall be sent by facsimile transmission or comparable medium, or be delivered personally or by telephone, at least twenty-four hours before the time at which such meeting is to be held; but notice need not be given to a member of the Executive Committee who shall waive notice thereof as provided in Article IX of these By-laws, and any meeting of the Executive Committee shall be a legal meeting without any notice thereof having been given, if all the members of such Committee shall be present thereat. SECTION 4. Quorum and Manner of Acting of the Executive Committee. Four members of the Executive Committee shall constitute a quorum for the transaction of business, and the act of a majority of the members of the Executive Committee present at a meeting at which a quorum shall be present shall be the act of the Executive Committee. Participating in a meeting by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other shall constitute presence at a meeting of the Executive Committee. The members of the Executive Committee shall act only as a committee and individual members shall have no power as such. SECTION 5. Other Committees. The Board may, by resolution adopted by a majority of the Board, designate members of the Board to constitute other committees, which shall have, and may exercise, such powers as the Board may by resolution delegate to them, and shall in each case consist of such number of directors as the Board may determine; provided, however, that each such committee shall have at least three directors as members thereof. Such a committee may either be constituted for a specified term or may be constituted as a standing committee which does not require annual or periodic reconstitution. A majority of all the members of any such committee may determine its action and its quorum requirements and may fix the time and place of its meetings, unless the Board shall otherwise provide. Participating in a meeting by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other shall constitute presence at a meeting of such other committees. In addition to the foregoing, the Board may, by resolution adopted by a majority of the Board, create a committee of indeterminate membership and duration and not subject to the limitations as to the membership, quorum and manner of meeting and acting prescribed in these By-laws, which committee, in the event of a major disaster or catastrophe or national emergency which renders the Board incapable of action by reason of the death, physical incapacity or inability to meet of some or all of its members, shall have, and may exercise all the powers of the Board in the management of the business and affairs of the Corporation (including, without limitation, the power to authorize the seal of the Corporation to be affixed to all papers which may require it and the power to fill vacancies in the Board). An act of such committee taken within the scope of its authority shall be an act of the Board. SECTION 6. Changes in Committees; Resignations; Removals; Vacancies. The Board shall have power, by resolution adopted by a majority of the Board, at any time to change or remove the members of, to fill vacancies in, and to discharge any committee created pursuant to these By-laws, either with or without cause. Any member of any such committee may resign at any time by giving written notice to the Board or the Chairman of the Board or the Secretary. Such resignation shall take effect upon receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, acceptance of such resignation shall not be necessary to make it effective. Any vacancy in any committee, whether arising from death, resignation, an increase in the number of committee members or any other cause, shall be filled by the Board in the manner prescribed in these By-laws for the original appointment of the members of such committee. ARTICLE V OFFICERS SECTION 1. Number and Qualifications. The officers of the Corporation shall include the Chairman of the Board, and may include one or more Vice Chairmen of the Board, the President, one or more Vice Presidents (one or more of whom may be designated as Executive Vice Presidents or as Senior Vice Presidents or by other designations), the Treasurer, the Secretary and the Controller. Officers shall be elected from time to time by the Board, each to hold office until a successor shall have been duly elected and shall have qualified, or until death, or until resignation as hereinafter provided in Section 2 of this Article V, or until removed as hereinafter provided in Section 3 of this Article V. SECTION 2. Resignations. Any officer of the Corporation may resign at any time by giving written notice of resignation to the Board, the Chairman of the Board, the Chief Executive Officer or the Secretary. Any such resignation shall take effect at the time specified therein, or, if the time when it shall become effective shall not be specified therein, then it shall become effective upon its receipt; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 3. Removal. Any officer of the Corporation may be removed, either with or without cause, at any time, by a resolution adopted by a majority of the Board at any meeting of the Board. SECTION 4. Vacancies. A vacancy in any office, whether arising from death, resignation, removal or any other cause, may be filled for the unexpired portion of the term of office which shall be vacant, in the manner prescribed in these By-laws for the regular election or appointment to such office. SECTION 5. Chairman of the Board. The Chairman of the Board shall, if present, preside at each meeting of the stockholders and of the Board and shall perform such other duties as may from time to time be assigned by the Board. The Chairman may sign certificates representing shares of the stock of the Corporation pursuant to the provisions of Section 1 of Article VII of these By-laws; sign, execute and deliver in the name of the Corporation all deeds, mortgages, bonds, contracts or other instruments authorized by the Board, except in cases where the signing, execution or delivery thereof shall be expressly delegated by the Board or these By-laws to some other officer or agent of the Corporation or where they shall be required by law otherwise to be signed, executed and delivered; and affix the seal of the Corporation to any instrument which shall require it. The Chairman of the Board, when there is no President or in the absence or incapacity of the President, shall perform all the duties and functions and exercise all the powers of the President. SECTION 6. Vice Chairman of the Board. Each Vice Chairman of the Board shall assist the Chairman of the Board and have such other duties as may be assigned by the Board or the Chairman of the Board. The Vice Chairman may sign certificates representing shares of the stock of the Corporation pursuant to the provisions of Section 1 of Article VII of these By-laws; sign, execute and deliver in the name of the Corporation all deeds, mortgages, bonds, contracts or other instruments authorized by the Board, except in cases where the signing, execution or delivery thereof shall be expressly delegated by the Board or these By-laws to some officer or agent of the Corporation or where they shall be required by law otherwise to be signed, executed and delivered; and affix the seal of the Corporation to any instrument which shall require it. SECTION 7. President. The President shall perform all such duties as from time to time may be assigned by the Board or the Chairman of the Board. The President may sign certificates representing shares of the stock of the Corporation pursuant to the provisions of Section 1 of Article VII of these By-laws; sign, execute and deliver in the name of the Corporation all deeds mortgages, bonds, contracts or other instruments authorized by the Board, except in cases where the signing, execution or delivery thereof shall be expressly delegated by the Board or these By-laws to some other officer or agent of the Corporation or where they shall be required by law otherwise to be signed, executed and delivered, and affix the seal of the Corporation to any instrument which shall require it; and, in general, perform all duties incident to the office of President. The President shall in the absence or incapacity of the Chairman of the Board, perform all the duties and functions and exercise all the powers of the Chairman of the Board. SECTION 8. Designated Officers. (a) Chief Executive Officer. Either the Chairman of the Board, or the President, as the Board of Directors may designate, shall be the Chief Executive Officer of the Corporation. The officer so designated shall have, in addition to the powers and duties applicable to the office set forth in Section 5 or 7 of this Article V, general and active supervision over the business and affairs of the Corporation and over its several officers, agents, and employees, subject, however, to the control of the Board. The Chief Executive Officer shall see that all orders and resolutions of the Board are carried into effect, be an ex officio member of all committees of the Board (except the Audit Committee, the Directors and Corporate Governance Committee, and committees specifically empowered to fix or approve the Chief Executive Officer's compensation or to grant or administer bonus, option or other similar plans in which the Chief Executive Officer is eligible to participate), and, in general, shall perform all duties incident to the position of Chief Executive Officer and such other duties as may from time to time be assigned by the Board. (b) Other Designated Officers. The Board of Directors may designate officers to serve as Chief Financial Officer, Chief Accounting Officer and other such designated positions and to fulfill the responsibilities of such designated positions in addition to their duties as officers as set forth in this Article V. SECTION 9. Executive Vice Presidents, Senior Vice Presidents and Vice Presidents. Each Executive and Senior Vice President shall perform all such duties as from time to time may be assigned by the Board or the Chairman of the Board or a Vice Chairman of the Board or the President. Each Vice President shall perform all such duties as from time to time may be assigned by the Board or the Chairman of the Board or a Vice Chairman of the Board or the President or an Executive or a Senior Vice President. Any Vice President may sign certificates representing shares of stock of the Corporation pursuant to the provisions of Section 1 of Article VII of these By-laws. SECTION 10. Treasurer. The Treasurer shall: (a) have charge and custody of, and be responsible for, all the funds and securities of the Corporation, and may invest the same in any securities, may open, maintain and close accounts for effecting any and all purchase, sale, investment and lending transactions in securities of any and all kinds for and on behalf of the Corporation or any employee pension or benefit plan fund or other fund established by the Corporation, as may be permitted by law; (b) keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation; (c) deposit all moneys and other valuables to the credit of the Corporation in such depositaries as may be designated by the Board or the Executive Committee; (d) receive, and give receipts for, moneys due and payable to the Corporation from any source whatsoever; (e) disburse the funds of the Corporation and supervise the investment of its funds, taking proper vouchers therefor; (f) render to the Board, whenever the Board may require, an account of all transactions as Treasurer; and (g) in general, perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned by the Board or the Chairman of the Board or a Vice Chairman of the Board or the President or an Executive or Senior Vice President. SECTION 11. Secretary. The Secretary shall: (a) keep or cause to be kept in one or more books provided for the purpose, the minutes of all meetings of the Board, the Executive Committee and other committees of the Board and the stockholders; (b) see that all notices are duly given in accordance with the provisions of these By-laws and as required by law; (c) be custodian of the records and the seal of the Corporation and affix and attest the seal to all stock certificates of the Corporation and affix and attest the seal to all other documents to be executed on behalf of the Corporation under its seal; (d) see that the books, reports, statements, certificates and other documents and records required by law to be kept and filed are properly kept and filed; and (e) in general, perform all the duties incident to the office of Secretary and such other duties as from time to time may be assigned by the Board or the Chairman of the Board or a Vice Chairman of the Board or the President or an Executive or Senior Vice President. SECTION 12. Controller. The Controller shall: (a) have control of all the books of account of the Corporation; (b) keep a true and accurate record of all property owned by it, of its debts and of its revenues and expenses; (c) keep all accounting records of the Corporation (other than the accounts of receipts and disbursements and those relating to the deposits of money and other valuables of the Corporation, which shall be kept by the Treasurer); (d) render to the Board, whenever the Board may require, an account of the financial condition of the Corporation; and (e) in general, perform all the duties incident to the office of Controller and such other duties as from time to time may be assigned by the Board or the Chairman of the Board or a Vice Chairman of the Board or the President or an Executive or Senior Vice President. SECTION 13. Compensation. The compensation of the officers of the Corporation shall be fixed from time to time by the Board; provided, however, that the Board may delegate to a committee the power to fix or approve the compensation of any officers. An officer of the Corporation shall not be prevented from receiving compensation by reason of being also a director of the Corporation; but any such officer who shall also be a director shall not have any vote in the determination of the amount of compensation paid to such officer. ARTICLE VI CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC. SECTION 1. Execution of Contracts. Except as otherwise required by law or these By-laws, any contract or other instrument may be executed and delivered in the name and on behalf of the Corporation by any officer (including any assistant officer) of the Corporation. The Board or the Executive Committee may authorize any agent or employee to execute and deliver any contract or other instrument in the name and on behalf of the Corporation, and such authority may be general or confined to specific instances as the Board or such Committee, as the case may be, may by resolution determine. SECTION 2. Loans. Unless the Board shall otherwise determine, the Chairman of the Board or a Vice Chairman of the Board or the President or any Vice President, acting together with the Treasurer or the Secretary, may effect loans and advances at any time for the Corporation from any bank, trust company or other institution, or from any firm, corporation or individual, and for such loans and advances may make, execute and deliver promissory notes, bonds or other certificates or evidences of indebtedness of the Corporation, but in making such loans or advances no officer or officers shall mortgage, pledge, hypothecate or transfer any securities or other property of the Corporation, except when authorized by resolution adopted by the Board. SECTION 3. Checks, Drafts, etc. All checks, drafts, bills of exchange or other orders for the payment of money out of the funds of the Corporation, and all notes or other evidences of indebtedness of the Corporation, shall be signed in the name and on behalf of the Corporation by such persons and in such manner as shall from time to time be authorized by the Board or the Executive Committee or authorized by the Treasurer acting together with either the General Manager of an operating unit or a nonfinancial Vice President of the Corporation, which authorization may be general or confined to specific instances. SECTION 4. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositaries as the Board or the Executive Committee may from time to time designate or as may be designated by any officer or officers of the Corporation to whom such power of designation may from time to time be delegated by the Board or the Executive Committee. For the purpose of deposit and for the purpose of collection for the account of the Corporation, checks, drafts and other orders for the payment of money which are payable to the order of the Corporation may be endorsed, assigned and delivered by any officer, employee or agent of the Corporation. SECTION 5. General and Special Bank Accounts. The Board or the Executive Committee may from time to time authorize the opening and keeping of general and special bank accounts with such banks, trust companies or other depositaries as the Board or the Executive Committee may designate or as may be designated by any officer or officers of the Corporation to whom such power of designation may from time to time be delegated by the Board or the Executive Committee. The Board or the Executive Committee may make such special rules and regulations with respect to such bank accounts, not inconsistent with the provisions of these By-laws, as it may deem expedient. SECTION 6. Indemnification. The Corporation shall, to the fullest extent permitted by applicable law as in effect at any time, indemnify any person made, or threatened to be made, a party to an action or proceeding whether civil or criminal (including an action or proceeding by or in the right of the Corporation or any other corporation of any type or kind, domestic or foreign, or any partnership, joint venture, trust, employee benefit plan or other enterprise, for which any director or officer of the Corporation served in any capacity at the request of the Corporation), by reason of the fact that such person or such person's testator or intestate was a director or officer of the Corporation, or served such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in any capacity, against judgments, fines, amounts paid in settlement and reasonable expenses, including attorneys' fees actually and necessarily incurred as a result of such action or proceeding, or any appeal therein. Such indemnification shall be a contract right and shall include the right to be paid advances of any expenses incurred by such person in connection with such action, suit or proceeding, consistent with the provisions of applicable law in effect at any time. Indemnification shall be deemed to be 'permitted' within the meaning of the first sentence hereof if it is not expressly prohibited by applicable law as in effect at the time. ARTICLE VII SHARES SECTION 1. Stock Certificates. The shares of the Corporation shall be represented by certificates, or shall be uncertificated shares. Each owner of stock of the Corporation shall be entitled to have a certificate, in such form as shall be approved by the Board, certifying the number of shares of stock of the Corporation owned. To the extent that shares are represented by certificates, such certificates of stock shall be signed in the name of the Corporation by the Chairman of the Board or a Vice Chairman of the Board or the President or a Vice President and by the Secretary and sealed with the seal of the Corporation (which seal may be a facsimile, engraved or printed); provided, however, that where any such certificate is signed by a registrar, other than the Corporation or its employee, the signatures of the Chairman of the Board, a Vice Chairman of the Board, the President, the Secretary, and transfer agent or a transfer clerk acting on behalf of the Corporation upon such certificates may be facsimiles, engraved or printed. In case any officer, transfer agent or transfer clerk acting on behalf of the Corporation ceases to be such officer, transfer agent, or transfer clerk before such certificates shall be issued, they may nevertheless be issued by the Corporation with the same effect as if they were still such officer, transfer agent or transfer clerk at the date of their issue. SECTION 2. Books of Account and Record of Stockholders. There shall be kept at the office of the Corporation correct books of account of all its business and transactions, minutes of the proceedings of stockholders, Board, and Executive Committee, and a book to be known as the record of stockholders, containing the names and addresses of all persons who are stockholders, the number of shares of stock held, and the date when the stockholder became the owner of record thereof. SECTION 3. Transfers of Stock. Transfers of shares of stock of the Corporation shall be made on the record of stockholders of the Corporation only upon authorization by the registered holder thereof, or by an attorney thereunto authorized by power of attorney duly executed and filed with the Secretary or with a transfer agent or transfer clerk, and on surrender of the certificate or certificates for such shares properly endorsed, provided such shares are represented by a certificate, or accompanied by a duly executed stock transfer power and the payment of all taxes thereon. The person in whose names shares of stock shall stand on the record of stockholders of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation. Whenever any transfers of shares shall be made for collateral security and not absolutely and written notice thereof shall be given to the Secretary or to such transfer agent or transfer clerk, such fact shall be stated in the entry of the transfer. SECTION 4. Regulations. The Board may make such additional rules and regulations as it may deem expedient, not inconsistent with these By-laws, concerning the issue, transfer and registration of certificated or uncertificated shares of stock of the Corporation. It may appoint, or authorize any officer or officers to appoint, one or more transfer agents or one or more transfer clerks and one or more registrars and may require all certificates of stock to bear the signature or signatures of any of them. SECTION 5. Fixing of Record Date. The Board shall fix a time not exceeding sixty 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 sixty days preceding the date fixed for the payment of any dividend or the making of any distribution or the allotment of rights to subscribe for securities of the Corporation, or for the delivery of evidences of rights or evidences of interests arising out of any change, conversion or exchange of capital stock or other securities, as the record date for the determination of the stockholders entitled to receive any such dividend, distribution, allotment, rights or interests, and in such case only the stockholders of record at the time so fixed shall be entitled to receive such dividend, distribution, allotment, rights or interests. SECTION 6. Lost, Destroyed or Mutilated Certificates. The holder of any certificate representing shares of stock of the Corporation shall immediately notify the Corporation of any loss, destruction or mutilation of such certificate, and the Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it which the owner thereof shall allege to have been lost or destroyed or which shall have been mutilated, and the Corporation may, in its discretion, require such owner or the owner's legal representatives to give to the Corporation a bond in such sum, limited or unlimited, and in such form and with such surety or sureties as the Board in its absolute discretion shall determine, to indemnify the Corporation against any claim that may be made against it on account of the alleged loss or destruction of any such certificate, or the issuance of such new certificate. Anything to the contrary notwithstanding, the Corporation, in its absolute discretion, may refuse to issue any such new certificate, except pursuant to legal 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 by the person or persons entitled to said notice or 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. INTERNATIONAL BUSINESS MACHINES CORPORATION The undersigned does hereby certify that the foregoing is a true and complete copy of the By-laws of International Business Machines Corporation, including all amendments thereto, and the same is in force at the date hereof. IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the seal of said Corporation, this day of 19 . ---------------------------- Title: ---------------------------- EX-11 3 COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11 COMPUTATION OF BASIC AND DILUTED EARNINGS PER SHARE (UNAUDITED) For Quarter Ended -------------------------------------- September 30, 1998 September 30, 1997 ------------------ ------------------ Number of shares on which basic earnings per share is calculated: Average outstanding during period 928,427,862 978,021,313 Add - Incremental shares under stock compensation plans 26,070,264 27,186,769 ------------ -------------- Number of shares on which diluted earnings per share is based 954,498,126 1,005,208,082 ============ ============== Net earnings applicable to common shareholders (millions) $ 1,489 $ 1,354 ------------ -------------- Net earnings on which diluted earnings per share is based (millions) $ 1,489 $ 1,354 ============ ============== Basic earnings per share $ 1.60 $ 1.38 Diluted earnings per share $ 1.56 $ 1.35 Stock options to purchase 13,800 shares in 1998 were outstanding, but were not included in the computation of diluted earnings because the options' exercise price was greater than the average market price of the common shares, and therefore, the effect would be antidilutive. Net earnings applicable to common shareholders excludes preferred stock dividends of $5 million for the periods ended September 30, 1998 and 1997. -1- COMPUTATION OF BASIC AND DILUTED EARNINGS PER SHARE - (CONTINUED) (UNAUDITED) For Nine Months Ended -------------------------------------- September 30, 1998 September 30, 1997 ------------------ ------------------ Number of shares on which basic earnings per share is based: Average outstanding during period ........ 939,416,635 989,436,333 Add - Incremental shares under stock compensation plans ................. 26,096,394 29,727,625 -------------- -------------- Number of shares on which diluted earnings per share is calculated ......... 965,513,029 1,019,163,958 ============== ============== Net earnings applicable to common shareholders (millions) .................. $ 3,967 $ 3,985 -------------- -------------- Net earnings on which diluted earnings per share is based (millions) ...................... $ 3,967 $ 3,985 ============== ============== Basic earnings per share ................. $ 4.22 $ 4.03 Diluted earnings per share ............... $ 4.11 $ 3.91 Stock options to purchase 188,850 shares in 1998 were outstanding, but were not included in the computation of diluted earnings because the options' exercise price was greater than the average market price of the common shares, and therefore, the effect would be antidilutive. Net earnings applicable to common shareholders excludes preferred stock dividends of $15 million for the periods ended September 30, 1998 and 1997. -2- EX-12 4 COMPUTATION OF RATIO OF EARNINGS EXHIBIT 12 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS FOR NINE MONTHS ENDED SEPTEMBER 30: (UNAUDITED) (Dollars in millions) 1998 1997 -------- -------- Earnings before income taxes(1) $ 5,720 $ 6,035 Add: Fixed charges, excluding capitalized interest 1,512 1,449 -------- -------- Earnings as adjusted $ 7,232 $ 7,484 ======== ======== Fixed charges: Interest expense 1,154 1,157 Capitalized interest 20 26 Portion of rental expense representative of interest 358 292 -------- -------- Total fixed charges $ 1,532 $ 1,475 ======== ======== Preferred stock dividends(2) 21 22 -------- -------- Combined fixed charges and preferred stock dividends $ 1,553 $ 1,497 ======== ======== Ratio of earnings to fixed charges 4.72 5.07 Ratio of earnings to combined fixed charges and preferred stock dividends 4.66 5.00 (1) Earnings before income taxes excludes the company's share in the income and losses of less-than-fifty percent-owned affiliates. (2) Included in the ratio computation are preferred stock dividends of $15 million for the first nine months of 1998 and 1997, or $21 million and $22 million, respectively, representing the pre-tax earnings which would be required to cover such dividend requirements based on the company's effective tax rate for the nine months ended September 30, 1998 and 1997. -1- EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM IBM CORPORATION'S FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 9-MOS DEC-31-1998 SEP-30-1998 5,553 316 17,682 0 5,548 38,802 43,781 24,776 79,719 31,512 0 9,804 0 252 8,579 79,719 23,343 56,536 16,279 35,473 15,227 0 500 5,738 1,756 3,982 0 0 0 3,982 4.22 4.11
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