FINANCIAL REPORT
18 Report of Management
19 Report of Independent Accountants
20 Management Discussion
32 Consolidated Financial Statements
Operations
Financial Position
Cash Flows
Stockholders' Equity
36 Notes to Consolidated Financial Statements
A Significant Accounting Policies
B Accounting Changes
C Marketable Securities
D Inventories
E Plant, Rental Machines and Other Property
F Investments and Sundry Assets
G Short-Term Debt
H Long-Term Debt
I Preferred Stock
J Taxes
K Research, Development and Engineering
L Restructuring Actions
M Interest on Debt
N Other Liabilities
O Environmental
P Customer Financing
Q Rental Expense and Lease Commitments
R Long-Term Performance Plan
S Stock Purchase Plan
T Retirement Plans
U Nonpension Postretirement Benefits
V Lines of Credit
W Sales and Securitization of Receivables
X Financial Instruments
Y Segment Information
Z Geographic Areas
63 Five-Year Comparison of Selected Financial Data
63 Selected Quarterly Data
Financial Highlights
International Business Machines Corporations and Subsidiary Companies
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(Dollars in millions except per share amounts) 1993 1992
For the Year:
Revenue $ 62,716 $ 64,523
Loss before income taxes $ (8,797) $ (9,026)
Income taxes $ (810) $ (2,161)
Net loss before changes in accounting principles $ (7,987) $ (6,865)
Per share of common stock $ (14.02) $ (12.03)
Effect of changes in accounting principles * $ (114) $ 1,900
Per share of common stock $ (.20) $ 3.33
Net loss $ (8,101) $ (4,965)
Per share of common stock $ (14.22) $ (8.70)
Cash dividends paid on common stock $ 905 $ 2,765
Per share of common stock $ 1.58 $ 4.84
Investment in plant, rental machines and other
property $ 3,232 $ 4,698
Average number of common shares outstanding (in
millions) 573 571
At End of Year:
Total assets $ 81,113 $ 86,705
Net investment in plant, rental machines and other
property $ 17,521 $ 21,595
Working capital $ 6,052 $ 2,955
Total debt $ 27,342 $ 29,320
Stockholders' equity $ 19,738 $ 27,624
Number of regular, full-time employees 256,207 301,542
Number of stockholders 741,047 764,630
*1993, cumulative effect of Statement of Financial Accounting Standards (SFAS)
112, "Employers' Accounting for Postemployment Benefits"; and 1992, cumulative
effect of SFAS 109, "Accounting for Income Taxes."
IBM develops, manufactures and sells advanced information processing products,
including computers and microelectronic technology, software, networking systems
and information technology-related services. We offer value worldwide--through
our United States, Canada, Europe/Middle East/Africa, Latin America and Asia
Pacific business units--by providing comprehensive and competitive product
choices.
International Business Machines Corporation and Subsidiary Companies 18
Responsibility for the integrity and objectivity of the financial information
presented in this Annual Report rests with IBM management. The accompanying
financial statements have been prepared in conformity with generally accepted
accounting principles, applying certain estimates and judgments as required.
IBM maintains an effective internal control structure. It consists, in part, of
organizational arrangements with clearly defined lines of responsibility and
delegation of authority, and comprehensive systems and control procedures. We
believe this structure provides reasonable assurance that transactions are
executed in accordance with management authorization, and that they are
appropriately recorded, in order to permit preparation of financial statements
in conformity with generally accepted accounting principles and to adequately
safeguard, verify, and maintain accountability of assets. An important element
of the control environment is an ongoing internal audit program.
To assure the effective administration of internal control, we carefully select
and train our employees, develop and disseminate written policies and
procedures, provide appropriate communication channels, and foster an
environment conducive to the effective functioning of controls. We believe that
it is essential for the company to conduct its business affairs in accordance
with the highest ethical standards, as set forth in the IBM Business Conduct
Guidelines. These guidelines, translated into numerous languages, are
distributed to employees throughout the world, and reemphasized through
internal programs to assure that they are understood and followed.
Price Waterhouse, independent accountants, are retained to examine IBM's
financial statements. Their accompanying report is based on an examination
conducted in accordance with generally accepted auditing standards, including a
review of the internal control structure and tests of accounting procedures and
records.
The Audit Committee of the Board of Directors is composed solely of outside
directors, and is responsible for recommending to the Board the independent
accounting firm to be retained for the coming year, subject to stockholder
approval. The Audit Committee meets periodically and privately with the
independent accountants, with our internal auditors, as well as with IBM
management, to review accounting, auditing, internal control structure, and
financial reporting matters.
/s/ Louis V. Gerstner, Jr. /s/ Jerome B. York
Louis V. Gerstner, Jr. Jerome B. York
Chairman of the Board Senior Vice President
and Chief Executive Officer and Chief Financial Officer
International Business Machines Corporation and Subsidiary Companies 19
To the Stockholders and Board of Directors of International Business Machines
Corporation:
In our opinion, the accompanying consolidated financial statements, appearing
on pages 32 through 62, present fairly, in all material respects, the financial
position of International Business Machines Corporation and its subsidiaries at
December 31, 1993 and 1992, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1993, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits on these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
As discussed in the note on accounting changes on pages 37 and 38, the company
changed its methods of accounting for postemployment benefits in 1993, income
taxes in 1992 and nonpension postretirement benefits in 1991. We concur with
these changes.
/s/ Price Waterhouse
Price Waterhouse
1177 Avenue of the Americas
New York, NY 10036
February 16, 1994
International Business Machines Corporation and Subsidiary Companies 20
The following table sets forth selected income and expense items:
Percentage of Total Revenue Percentage Changes*
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1991 1992 1993 Income and Expense Items 1993-92 1992-91
Revenue:
57.3% 52.3% 48.8% Hardware sales (9.4)% (9.0)%
16.2 17.2 17.5 Software (1.4) 5.8
8.6 11.4 15.5 Services 32.1 31.7
11.4 11.8 11.6 Maintenance (4.4) 3.0
6.5 7.3 6.6 Rentals and financing (10.9) 11.9
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100.0 100.0 100.0 Total revenue (2.8) (0.4)
49.5 54.4 61.5 Total cost 10.0 9.3
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50.5 45.6 38.5 Gross profit (18.0) (9.9)
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Expenses:
33.0 30.3 29.2 Selling, general and administrative (6.4) (8.7)
Research, development
10.3 10.1 8.9 and engineering (14.8) (1.8)
5.8 18.0 14.3 Restructuring charges -- --
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49.1 58.4 52.4 Total operating expenses -- --
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0.9 0.9 1.8 Other Income, principally interest 94.2 (4.8)
2.2 2.1 2.0 Interest expense (6.4) (4.4)
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Net Earnings:
Before restructuring charges and
3.5 2.2 0.0 accounting changes -- --
(4.4) (7.7) (12.9) Net loss -- --
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* Percentage changes displayed as (--) are not meaningful.
Overview
IBM has continued to aggressively restructure its worldwide business operations
to improve its competitive position within a rapidly changing market for
information technology products and services. Industry demand has slowed in
recent years, and the industry continues to suffer from excess capacity and
sluggish economic growth, particularly in Europe and Japan. The company's
recent business results reflect these realities, as well as an ongoing revenue
shift to offerings with lower gross profit margins, such as services and
personal computers.
During 1993, a number of actions were announced to "right-size" the company.
These actions, including reductions in the company's worldwide work force,
office space, capacity and related expenses, are intended to bring the
company's cost and expense structure in line with industry levels. They were
based on the company's assumptions of future industry demand and revenue
growth. If these assumptions prove correct, the company believes it will be
able to absorb, without resorting to additional special charges, the costs
associated with any future productivity improvements. If the company's current
view of future industry revenue and demand proves incorrect, the company will
have to take further actions. The company's management strategy also shifted in
1993 from the establishment of increasingly autonomous business units--an
emerging federation of companies--to remaining an integrated provider of
information technology.
Management Discussion
International Business Machines Corporation and Subsidiary Companies 21
Overall, the company's hardware offerings remain under price and gross profit
margin pressure. Mainframe processor revenue and margins declined significantly
in the last year, and this trend may continue. Revenue and volume trends were
positive for personal computers and RISC System/6000* over the last year.
However, personal computers compete in a relatively low margin,
price-competitive environment, and the company expects this trend to continue.
Other hardware areas are also expected to remain under competitive pressure
consistent with recent experience. The company's services offerings, while
growing rapidly, are at lower margins than the company's traditional hardware
offerings. Due to the changing mix of revenue and gross profit margins, it is
uncertain when pressure on the company's cost structure will be diminished.
Results of Operations
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(Dollars in millions) 1993 1992 1991
Revenue $ 62,716 $ 64,523 $ 64,766
Cost 38,568 35,069 32,073
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Gross profit $ 24,148 $ 29,454 $ 32,693
Gross profit margin 38.5% 45.6% 50.5%
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Income before restructuring charges $ 308 $ 3,406 $ 4,673
Operating (loss) income after restructuring
charges (8,637) (8,239) 939
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Net earnings before restructuring charges
and accounting changes 9 1,417 2,277
Net loss after restructuring charges and
accounting changes $ (8,101) $ (4,965) $ (2,861)
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Revenue in the United States was $25.7 billion, an increase of 4.3 percent
above 1992, following a .8 percent increase in 1992 over 1991. Non-U.S.
operations generated revenue of $37.0 billion, a 7.2 percent decrease from
1992, following a decline of 1.1 percent in 1992 from 1991.
Gross profit margins, driven by hardware pricing pressures and the company's
shift to services revenue, have declined each year from 1991 to 1993. Although
the gross profit margin declined 7.1 points in 1993 from 1992, the last five
quarters' aggregate gross profit margin has been relatively stable at
approximately 38 percent.
The company generated $148 million of earnings before taxes and restructuring
charges in 1993. After preferred stock dividends, the company had a loss,
before restructuring charges and accounting changes, of $.07 per common share.
Prior to restructuring charges and the cumulative effect of $114 million ($.20
decrease in earnings per common share) as a result of the company's adoption of
Statement of Financial Accounting Standards (SFAS) 112, "Employers' Accounting
for Postemployment Benefits," after-tax results were essentially break-even.
Including restructuring but prior to the effect of accounting changes, the
company had a net, after-tax loss of $8.0 billion ($14.02 per common share)
compared with a net, after-tax loss of $6.9 billion in 1992 ($12.03 per common
share) and a net, after-tax loss of $.6 billion in 1991 ($1.05 per common
share). After restructuring and accounting changes, the company reported, for
1993, 1992, and 1991 respectively, losses of $8.1 billion ($14.22 per common
share), $5.0 billion ($8.70 per common share), and $2.9 billion ($5.01 per
common share).
Management Discussion
International Business Machines Corporation and Subsidiary Companies 22
Revenue and Gross Profit
The company continued to experience a change in the makeup of its revenue as
more of its revenue, 51.2 percent, came from non-hardware sales sources versus
47.7 percent in 1992 and 42.7 percent in 1991. Further, within hardware sales,
the mix of revenue from personal systems, which carry a lower margin, increased
to 31.7 percent in 1993, versus 23.3 percent in 1992 and 22.9 percent in 1991.
This changing mix, as well as continuing price pressures, have driven margins
down over the last three years.
Hardware sales
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(Dollars in millions) 1993 1992 1991
Total revenue $ 30,591 $ 33,755 $ 37,093
Total cost 20,696 19,698 18,571
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Gross profit $ 9,895 $ 14,057 $ 18,522
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Gross profit margin 32.3% 41.6% 49.9%
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Worldwide revenue from hardware sales decreased 9.4 percent from 1992,
following a decrease of 9.0 percent in 1992 from 1991. Hardware sales revenue
from U.S. operations declined 1.4 percent in 1993, compared to a 5.1 percent
decline in 1992 from 1991. Hardware sales revenue from non-U.S. operations
reflect a decrease of 14.2 percent in 1993, following an 11.2 percent decline
in 1992 from 1991.
Worldwide gross profit dollars from hardware sales decreased 29.6 percent from
1992, following a decrease of 24.1 percent in 1992 from 1991. Hardware sales
gross profit dollars from U.S. operations decreased 28.8 percent in 1993,
compared to a 20.7 percent decline in 1992 from 1991. Hardware sales gross
profit dollars from non-U.S. operations reflect a decrease of 30.0 percent in
1993, following a 25.9 percent decline in 1992 from 1991. Total cost of
hardware sales was higher, primarily due to increased volumes associated with
personal systems products.
Revenue from processors decreased 27.6 percent in 1993 compared with 1992 and
6.9 percent in 1992 from 1991. These decreases were primarily due to declines
in System/390 processor revenue, resulting from price pressures. Application
System/400 product revenue declined slightly over the past two years, primarily
in Europe, due to lower volumes.
Personal systems revenue increased 23.3 percent in 1993 compared with 1992,
following a decrease of 7.3 percent in 1992 from 1991. The increase resulted
from strong demand for the company's personal computers, offset by price
actions. In addition, RISC System/6000 revenue increased, but at a lower rate
than in the previous year, reflecting lower growth in demand, particularly in
Europe. The decline in 1992 from 1991 reflected the severe price competition
experienced by personal computers, partially offset by strong growth in RISC
System/6000. On a volume basis, 1993 personal computer shipments were
approximately 4.3 million units, a growth of more than 1.0 million units over
1992, and a growth of more than 1.4 million units over 1991.
Storage products revenue decreased 18.2 percent in 1993, following a decrease
of 12.9 percent in 1992 from 1991. These declines were a result of continuing
price competition across most storage products.
Other hardware sales revenue increased 68.1 percent in 1993 over the previous
year, following an increase of 10.3 percent in 1992 from 1991. These increases
were primarily a result of higher original equipment manufacturer (OEM)
revenue.
Management Discussion
International Business Machines Corporation and Subsidiary Companies 23
Information on industry segments and classes of similar products or services is
included on pages 59 and 60. The product revenue trends demonstrated in this
discussion and in that disclosure are indicative, in all material respects, of
hardware sales activity.
Hardware sales gross profit margin decreases reflect the continuing price
competition for high-end products and personal computers; in addition, personal
computer revenues, which carry a lower gross profit margin, were a
proportionally larger part of hardware sales.
Software
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(Dollars in millions) 1993 1992 1991
Total revenue $ 10,953 $ 11,103 $ 10,498
Total cost 4,310 3,924 3,865
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Gross profit $ 6,643 $ 7,179 $ 6,633
Gross profit margin 60.7% 64.7% 63.2%
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Software revenue declined 1.4 percent in 1993 from 1992, following an increase
of 5.8 percent in 1992 over 1991. The decline was primarily a result of lower
one-time-charge revenue which followed decreased AS/400 computer placements.
Software gross profit dollars decreased 7.5 percent in 1993 from 1992,
following an increase of 8.2 percent in 1992 over 1991. The decrease in gross
profit margin in 1993 from 1992 was partially a result of lower one-time-charge
revenue as denoted above and a higher level of program product write-downs that
were recorded as a result of the continuing review of the company's portfolio
of software offerings. Increased amortization of program product costs
resulting from new offerings and shortened amortization periods instituted by
the company in 1992 also contributed to the decline in gross profit margin.
Services
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(Dollars in millions) 1993 1992 1991
Services $ 7,648 $ 5,530 $ 4,144
Federal Systems Company 2,063 1,822 1,438
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Services revenue excluding maintenance $ 9,711 $ 7,352 $ 5,582
Cost 8,279 6,051 4,531
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Gross profit $ 1,432 $ 1,301 $ 1,051
Gross profit margin 14.7% 17.7% 18.8%
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Maintenance revenue $ 7,295 $ 7,635 $ 7,414
Cost 3,545 3,430 3,379
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Gross profit $ 3,750 $ 4,205 $ 4,035
Gross profit margin 51.4% 55.1% 54.4%
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Total services revenue $ 17,006 $ 14,987 $ 12,996
Cost 11,824 9,481 7,910
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Gross profit $ 5,182 $ 5,506 $ 5,086
Gross profit margin 30.5% 36.7% 39.1%
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Services revenue, excluding maintenance, continued to show overall strong
growth, increasing 32.1 percent in 1993 over 1992, following an increase of
31.7 percent in 1992 over 1991.
Management Discussion
International Business Machines Corporation and Subsidiary Companies 24
Services gross profit dollars, excluding maintenance, increased 10.1 percent
but the margin decreased 3.0 points from 1992. As a result of ongoing reviews
of contract profitability, it was determined that cost adjustments in the
current period were required on certain older contracts that were not expected
to be profitable. This was the primary cause of the margin decline. Without the
Federal Systems Company, which is expected to be sold during the first quarter
of 1994, the services gross profit margins, excluding maintenance, were 16.5
percent, 21.3 percent, and 22.7 percent, in 1993, 1992, and 1991, respectively.
Maintenance revenue decreased 4.4 percent from 1992, after increasing 3.0
percent in 1992 over 1991. The 1993 decline is primarily due to competitive
pressures and lower hardware placements. Maintenance gross profit dollars
decreased 10.8 percent year-over-year, following an increase of 4.2 percent in
1992 from 1991. The decreases in gross profit dollars and margin percent
reflect the increasingly competitive nature of the business. This trend is
expected to continue.
Rentals and financing
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(Dollars in millions) 1993 1992 1991
Total revenue $ 4,166 $ 4,678 $ 4,179
Total costs 1,738 1,966 1,727
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Gross profit $ 2,428 $ 2,712 $ 2,452
Gross profit margin 58.3% 58.0% 58.7%
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Rentals and financing revenue decreased 10.9 percent from 1992, following an
increase of 11.9 percent in 1992 over 1991. Rentals and financing gross profit
dollars decreased 10.5 percent, following a 10.6 percent increase in 1992 over
1991. The decline in revenue and gross profit dollars in 1993 is a result of a
decline in high-end hardware placements in 1993 as compared with 1992.
Operating Expenses
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(Dollars in millions) 1993 1992 1991
Selling, general and administrative $ 18,282 $ 19,526 $ 21,375
Percentage of revenue 29.2% 30.3% 33.0%
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Research, development and engineering $ 5,558 $ 6,522 $ 6,644
Percentage of revenue 8.9% 10.1% 10.3%
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Selling, general and administrative (SG&A) expense decreased 6.4 percent from
1992, which follows a decrease of 8.7 percent in 1992 from 1991. These
decreases reflect the results of the company's focus on productivity,
restructuring programs, and expense controls. Work force related SG&A decreased
11.7 percent from 1992, which followed a decrease of 7.3 percent from 1991.
The other charges component of SG&A increased primarily as a result of exchange
losses from currency revaluations of cash in countries with highly inflationary
environments. These exchange losses are largely offset by higher interest
income as a result of higher interest rates in those countries. Research,
development and engineering expense decreased 14.8 percent in 1993, following a
decrease of 1.8 percent in 1992 from 1991. The reduction in research,
development and engineering expense reflects the company's reprioritization of
development efforts to growth areas as well as a focus on productivity,
restructuring programs, and expense controls.
Management Discussion
International Business Machines Corporation and Subsidiary Companies 25
Restructuring Charges
Restructuring charges were $8.9 billion in 1993, $11.6 billion in 1992, and
$3.7 billion in 1991. These charges include expenses associated with work force
reductions, facility consolidations, capacity reductions, and other related
actions to streamline the company. These charges are discussed further on pages
45 and 46.
Other Income
Other income, principally interest, was $1.1 billion in 1993, almost double
that of 1992. This increase reflects higher levels of available cash and higher
interest rates in countries whose economic environment is highly inflationary.
Although Other income increased, exchange losses from currency revaluations of
cash largely offset this increase. Exchange losses are reflected in SG&A
expense.
Provision For Income Taxes
The provision for income taxes resulted in a benefit of $810 million in 1993, a
benefit of $2,161 million in 1992, and a charge of $716 million in 1991. The
effective tax rates of (9) percent in 1993, (24) percent in 1992, and 607
percent in 1991 were principally due to limited tax benefits on restructuring
charges, along with a high effective tax rate on earnings in certain non-U.S.
operations. Excluding the effects of restructuring charges, the effective tax
rates were 94 percent in 1993, 46 percent in 1992, and 41 percent in 1991. The
high effective tax rate in 1993 resulted from earnings in non-U.S. operations
of $1.3 billion at an average tax rate of 50.2 percent, offset by a loss before
taxes in the U.S. of $1.1 billion at a tax rate of 44.5 percent.
The company accounts for income taxes under SFAS 109, "Accounting for Income
Taxes," which provides for recognition of deferred tax assets if realization of
such assets is more likely than not. In assessing the likelihood of
realization, management considered estimates of future taxable income. The
total amount of U.S. federal taxable income needed to realize U.S. federal
deferred tax assets, net of valuation allowances, is approximately $15.0
billion. In estimating the amount of U.S. taxable income that may be available
to the company to utilize as many deferred tax assets as possible, the last
three years' taxable income was considered. This was approximately $(3.0)
billion (estimated loss) for 1993, $4.4 billion for 1992, and $6.4 billion for
1991. The company also considered the impact on past and future taxable income
of restructuring actions already announced. If, in the future, it should become
advantageous, the company can again capitalize and amortize research and
development expenditures for tax purposes, which would increase current taxable
income.
Changes in Accounting Principles
In the fourth quarter of 1993, the company implemented SFAS 112, "Employers'
Accounting for Postemployment Benefits," effective January 1, 1993. The
cumulative effect of adopting this statement, which is discussed further on
page 37, resulted in a one-time charge of $114 million (net of approximately
$61 million of income tax benefits). Most of this charge was included in U.S.
operations.
Effective January 1, 1992, the company implemented SFAS 109. The cumulative
effect of adopting this statement resulted in a one-time benefit to net
earnings of $1,900 million for recognition of previously unrecognized tax
benefits.
In the first quarter of 1991, the company implemented SFAS 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." The transition
effect of adopting this statement resulted in a one-time charge of $2,263
million to net earnings (net of approximately $350 million of income tax
benefits).
Management Discussion
International Business Machines Corporation and Subsidiary Companies 26
Fourth Quarter
For the quarter ended December 31, 1993, the company announced earnings of $382
million ($.62 per common share) compared with a net loss of $45 million ($.08
per common share) before restructuring charges in the fourth quarter of 1992.
After restructuring charges in the fourth quarter of 1992, the company had
posted a loss of $5.5 billion ($9.57 per common share). Revenue for the fourth
quarter of 1993 totaled $19.4 billion, down one percent compared with the same
period of 1992.
U.S. revenue grew by 9.0 percent in the fourth quarter compared with the same
period of 1992, continuing a quarterly improvement trend. Revenue from Europe
and Asia, after currency adjustments, declined in the fourth quarter by 1.0
percent and 4.0 percent, respectively, compared with 1992's fourth quarter.
The company's hardware sales revenue was $10.4 billion in the fourth quarter, a
decline of 5.4 percent compared with the same period of 1992. Services revenue
was $3.2 billion in fourth quarter 1993, up 31.9 percent from 1992. Software
revenue declined by 3.8 percent, largely due to a decline in one-time-charge
software, principally AS/400 software. Maintenance, rentals and financing
revenue also decreased year-over-year.
Within specific hardware product areas, personal computer revenue rose strongly
in the quarter, compared with 1992's fourth quarter, and RISC System/6000
revenue increased. AS/400 revenue fell primarily due to sluggish European
demand. Mainframe and high-end disk drive revenue also declined.
The company's overall gross margin was down about one point in the fourth
quarter compared to the same period of 1992. Hardware sales margins improved in
the fourth quarter, and software, maintenance and services margins declined.
Total expenses, including net interest expense and excluding restructuring
charges, declined 9.0 percent in the fourth quarter compared with the same
period of 1992.
Financial Condition
The Consolidated Statement of Financial Position was significantly impacted by
actions taken by the company during 1993, including work force and capacity
reductions, and issuance of new debt and equity instruments.
Working Capital
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(Dollars in millions) 1993 1992
Current assets $ 39,202 $ 39,692
Current liabilities 33,150 36,737
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Working capital $ 6,052 $ 2,955
Current ratio 1.18:1 1.08:1
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Current assets decreased $.5 billion because of declines in receivables of $2.2
billion and inventories of $.8 billion, offset by increases in cash, cash
equivalents and marketable securities of $1.5 billion and prepaid expenses and
other current assets of $1.0 billion. The decline in accounts receivable is
primarily attributable to the company's securitization of assets and lower
year-to-year volumes in financing activities. The increase in prepaid expenses
and other current assets is due to an increase in deferred tax assets ($2.8
billion from $2.5 billion), and the net assets of the Federal Systems Company
($.7 billion), which have been reclassified to current assets being held for
sale.
Management Discussion
International Business Machines Corporation and Subsidiary Companies 27
Current liabilities decreased $3.6 billion because of a reduction of $4.4
billion in short-term debt, reflecting the company's ongoing efforts to reduce
its overall outstanding debt obligations, offset by a net increase of $.8
billion in other current liabilities (increases in taxes, accounts payable,
deferred income, and other accrued expenses and liabilities and a decrease in
accrued compensation and benefits).
Investments
The company's capital expenditures for plant and other property were
approximately $2.5 billion for the year ended December 31, 1993, a decrease of
approximately $2.1 billion from 1992. The net book value of plant, rental
machines and other property decreased $4.1 billion from year-end 1992,
primarily due to capacity reduction reserves recorded in the second quarter,
and depreciation exceeding current levels of capital additions.
In addition to software development expense included in research, development
and engineering expense, the company capitalized $1.5 billion of software costs
during 1993, versus the $1.8 billion capitalized in 1992. Ongoing amortization
of capitalized software costs for the same period amounted to $2.0 billion, an
increase of $.5 billion compared to 1992. In 1992, the company incurred an
additional $.7 billion in accelerated amortization of capitalized software
costs, which were charged to restructuring in the third quarter.
Debt and Equity
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(Dollars in millions) 1993 1992
Short-term debt $ 12,097 $ 16,467
Long-term debt 15,245 12,853
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Total Debt $ 27,342 $ 29,320
Stockholders' equity $ 19,738 $ 27,624
Long-term debt/Equity 77.2% 46.5%
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In June 1993, the company issued $1,250 million of 6 3/8 percent notes due June
15, 2000, and $550 million of 7 1/2 percent debentures due June 15, 2013. The
net proceeds from the issuance of these debt instruments were used for general
corporate purposes, including restructuring actions.
Other non-current liabilities increased $3.5 billion from December 31, 1992,
due primarily to restructuring actions announced in the second quarter of 1993,
and increases in nonpension postretirement benefits.
The company accrued for environmental matters, including estimated costs of
cleanup of Superfund and other waste sites. Estimated environmental costs are
not expected to materially affect the company's financial position or results
of operations in future periods. Further discussion of these accruals appears
on pages 46 and 47.
Stockholders' equity decreased from $27.6 billion at December 31, 1992, to
$19.7 billion at December 31, 1993, resulting from the 1993 net loss
principally reflecting the restructuring charge, partially offset by an
increase of $1.1 billion from the issuance in June 1993 of depositary shares
representing ownership of Series A 7 1/2 percent preferred stock. Net proceeds
from the preferred stock issuance were used for general corporate purposes,
including restructuring actions.
Management Discussion
International Business Machines Corporation and Subsidiary Companies 28
Currency Rate Fluctuations
The majority of worldwide currencies weakened versus the U.S. dollar in 1993
with the major exception being the Japanese yen. Approximately 85 percent of
the company's non-U.S. business is conducted in local currency environments.
Assets and liabilities denominated in local currencies translate into fewer
U.S. dollars as those local currencies weaken. Changes in net worth arising
from these currency fluctuations are accumulated in the equity translation
adjustments component of Stockholders' Equity. As of December 31, 1993, the
cumulative translation adjustment was $1.7 billion, which includes a decline in
this component of $.3 billion in 1993.
In the high inflation environments of Latin America, translation adjustments
are reflected in period income, as required by SFAS 52, "Foreign Currency
Translation." Wherever possible, the company minimizes currency risk in these
countries by linking prices and contracts to dollars and by financing
operations locally.
The company is, to a great degree, protected from currency risk in its business
operations by manufacturing and developing a significant portion of its product
line in non-U.S. countries, so that costs reflect local economic conditions.
Also, financial hedging instruments are used to minimize currency risks related
to the repatriation of dividends and royalties from non-U.S. subsidiaries.
Currency rate variations did not have a material effect on the company's
operating results in 1993, 1992, or 1991.
Liquidity
Management expects that the funds required to continue the level of investments
necessary to ensure the company's competitiveness, as well as funds used to pay
for restructuring actions and dividends, will be generated primarily from
operations.
The company continued to take actions during 1993 to further enhance its
liquidity. The company's Board of Directors approved management's plan to
issue, instead of purchase on the open market, stock to be sold to employees
under the IBM Employees Stock Purchase Plan. During 1993, approximately 3.3
million shares of IBM common stock were issued for this purpose. The company's
Board of Directors also authorized up to 15 million shares of IBM common stock
for contribution to the IBM U.S. Retirement Plan Trust Fund (the "Fund")
through 1994. On September 9, 1993, the company registered up to 6.5 million
shares of IBM common stock with the Securities and Exchange Commission for
contribution to the fund. The company contributed approximately 5.8 million of
those shares to the fund. Approximately 9.2 million shares of IBM common stock
remain available for contribution to the fund through 1994.
During 1993, as part of the company's worldwide program of securitizing assets
and improving its liquidity, the company received net cash proceeds from the
sale and securitization of trade and financing receivables to investors of
approximately $2.5 billion. Sales and securitization of trade receivables
accelerate the collections of such receivables, which typically range between
30-60 days. Sales of financing receivables accelerates collection by up to five
years.
In December 1993, the company entered into a $10.0 billion committed global
credit facility as part of the company's ongoing efforts to ensure appropriate
levels of liquidity. This subject is discussed further on pages 56 and 57.
Management Discussion
International Business Machines Corporation and Subsidiary Companies 29
In July of 1993, Standard & Poor's changed its Senior Long-Term Debt Rating of
the company and its rated subsidiaries from AA- to A, and its Short-Term Debt
Rating from A-1+ to A-1. Standard & Poor's also changed its Preferred Stock
Rating of the company from A+ to A-. Standard & Poor's has a negative rating
outlook on the company. In August, Moody's changed its Senior Long-Term Debt
Rating of the company and its rated subsidiaries from A1 to A3, and its
Short-Term Debt Rating from Prime-1 to Prime-2. Moody's also changed its
Preferred Stock Rating of the company from A2 to Baa1.
In September, Duff & Phelps changed its Senior Long-Term Debt Rating of the
company and its rated subsidiaries from AA- to A and assigned initial ratings
of Duff 1 for the company and its rated subsidiaries' Short-Term Debt and A-
for the company's Preferred Stock. In addition, Fitch Investors Service
assigned initial ratings for the company and its rated subsidiaries of A for
Senior-Long-Term Debt and F-1 for Short-Term Debt and A- for the company's
Preferred Stock.
The following table summarizes the company's cash flows from operating,
investing, and financing activities as prescribed by Generally Accepted
Accounting Principles (GAAP), as reflected in the Consolidated Statement of
Cash Flows on page 34:
- --------------------------------------------------------------------------------
(Dollars in millions) 1993 1992 1991
Net cash provided from (used in):
Operating activities $ 8,327 $ 6,274 $ 6,725
Investing activities (4,202) (5,878) (7,686)
Financing activities (1,914) 654 1,368
Effect of exchange rate changes
on cash and cash equivalents (796) (549) (315)
- --------------------------------------------------------------------------------
Net change in cash and cash equivalents $ 1,415 $ 501 $ 92
- --------------------------------------------------------------------------------
While the company had a net loss in 1993, principally as a result of
restructuring charges, the positive cash flow from operating activities was
primarily driven by the company's activities relative to securitization of
assets and restructuring charges taken, which had no current period cash
effect. There will, however, be cash outflows in future periods related to
these restructuring charges.
The period-to-period improvement in cash flow used in investing activities is
primarily attributable to the company's reduced, more focused investment in
plant, rental machines and other property.
In June 1993, the company issued $1.8 billion of new notes and debentures and
$1.1 billion of preferred stock. The net proceeds from these new debt and
equity financings, and the reduction in quarterly dividends as announced in
January and July of 1993, had a positive effect on financing cash flow from the
1992 period, which was more than offset by payments to settle short-term debt.
The company's "mainline" business involves the sales of information technology
products and services as distinct from its customer financing and certain other
activities. The company believes it is important to understand the different
dynamics of these two businesses. Therefore, the company has derived a model
for separately measuring cash flow of the "mainline" business. The model is
not, however, intended to replace the GAAP cash flow above, but is
supplementary in nature. Under this model, mainline cash flow from
Management Discussion
International Business Machines Corporation and Subsidiary Companies 30
operations was approximately $.8 billion in 1993. Operations includes operating
and investing activities, but excludes the impacts of changes in customer
financing assets and net cash proceeds from securitization of trade accounts
receivable, which are viewed as financing in nature.
Financing Risks
Customer financing is an integral part of the company's total worldwide
offerings. Financial results of customer financing can be found on pages 47
through 50. Inherent in customer financing are certain risks: credit, interest
rate, currency and residual value. The company manages credit risk through
comprehensive credit evaluations and pricing practices. Although the company's
position is slightly on the short-funded side to take advantage of lower
short-term interest rates, the company generally strives to match liability and
asset maturities, as well as currencies, and insures that the current cost of
funding is reflected in pricing of new transactions in order to minimize
interest and currency risk.
Residual value risk is managed by developing projections of future equipment
values at lease inception, reevaluating these projections periodically, and
effectively deploying remarketing capabilities to recover residual values, and
potentially earn a profit. In 1993 and 1992, the remarketing effort generated
profits. The following table depicts an approximation of the unguaranteed
residual value maturities for the company's sales-type leases, as well as a
projection of net book value of operating leases at the end of the lease terms
as of December 31, 1993. The following schedule excludes approximately $100
million of estimated residual value associated with non-IBM equipment.
- --------------------------------------------------------------------------------
(Dollars in millions) Total 1994 1995 1996 1997
Sales-type leases $ 760 $ 240 $ 250 $ 200 $ 70
Operating leases 250 175 50 20 5
- --------------------------------------------------------------------------------
Total residual value $ 1,010 $ 415 $ 300 $ 220 $ 75
- --------------------------------------------------------------------------------
Federal Systems Company
On December 13, 1993, IBM and Loral Corporation jointly announced the signing
of a definitive agreement for the purchase of the Federal Systems Company (FSC)
by Loral for $1.575 billion in cash. The transaction is effective January 1,
1994, and is expected to close during the first calendar quarter of 1994. The
amount of any gain, and ultimate cash proceeds, resulting from this sale may be
dependent on future performance of the Advanced Automation System (AAS)
contract for the Federal Aviation Authority (FAA) and certain other open
matters. The FAA is conducting a re-examination of the AAS contract, and
congressional hearings are scheduled with regard to air traffic control and the
future role of the FAA.
FSC markets specialized products and services to the defense, space, and other
agencies of the U.S. government and several non-U.S. governments. Federal
Systems Marketing, which sells the company's standard products to government
agencies, is not part of the transaction. In 1993, FSC had net earnings of $58
million on revenues of $2.3 billion. It had net assets of $751 million and
approximately 10,000 employees as of December 31, 1993.
Management Discussion
International Business Machines Corporation and Subsidiary Companies 31
Employees Percentage Changes
- --------------------------------------------------------------------------------
1993 1992 1991 1993-92 1992-91
IBM/Wholly owned subsidiaries 256,207 301,542 344,396 (15.0)% (12.4)%
Not Wholly owned subsidiaries 10,989 6,468 157 69.9% --
Complementary 35,000 29,000 33,000 20.7% (12.1)%
- --------------------------------------------------------------------------------
As of December 31, 1993, "full-time" employees were down 45,335 from 1992,
88,189 from 1991, and more than 150,000 from the peak level reached in 1986.
The company continues to form business entities to enhance efficiencies and
some of these entities, while not wholly owned, are consolidated into the
company's financial statements. The increase in employees in the not wholly
owned subsidiaries category since 1991 results primarily from the formation of
the following IBM business ventures: Advantis (2,876), Information Systems
Management Corporation (1,931), and Advanced Management Services Unit (1,089).
The company's complementary work force comprises various other workers hired
under temporary, part-time, and limited-term-employment arrangements to meet
specific business needs in a flexible and cost-effective manner.
Looking Forward
Although the company returned to profitability in the fourth quarter of 1993,
it was a difficult year and significant challenges remain. In 1994, the company
will continue to reduce its expenses as restructuring and other productivity
programs progress. By 1996, it is expected those actions, begun in 1993, to
reduce expense structure will yield approximately $7.0 billion in annual
savings.
The company will continue to develop a comprehensive set of strategies to meet
its long-term-growth objectives and expects the results of this strategic work
to begin to emerge in 1994.
Management Discussion
International Business Machines Corporation and Subsidiary Companies 32
Consolidated Statement of Operations
(Dollars in millions except per share amounts)
- --------------------------------------------------------------------------------
For the year ended December 31: Notes 1993 1992 1991
Revenue:
Hardware sales $ 30,591 $ 33,755 $ 37,093
Software 10,953 11,103 10,498
Services 9,711 7,352 5,582
Maintenance 7,295 7,635 7,414
Rentals and financing P 4,166 4,678 4,179
- --------------------------------------------------------------------------------
Total Revenue 62,716 64,523 64,766
- --------------------------------------------------------------------------------
Cost:
Hardware sales 20,696 19,698 18,571
Software 4,310 3,924 3,865
Services 8,279 6,051 4,531
Maintenance 3,545 3,430 3,379
Rentals and financing 1,738 1,966 1,727
- --------------------------------------------------------------------------------
Total Cost 38,568 35,069 32,073
- --------------------------------------------------------------------------------
Gross profit 24,148 29,454 32,693
Operating Expenses:
Selling, general and
administrative 18,282 19,526 21,375
Research, development and
engineering K 5,558 6,522 6,644
Restructuring charges L 8,945 11,645 3,735
- --------------------------------------------------------------------------------
Total Operating Expenses 32,785 37,693 31,754
- --------------------------------------------------------------------------------
Operating (Loss) Income (8,637) (8,239) 939
Other income, principally
interest 1,113 573 602
Interest expense M 1,273 1,360 1,423
- --------------------------------------------------------------------------------
(Loss) Earnings before Income
Taxes (8,797) (9,026) (118)
(Benefit) provision for income
taxes J (810) (2,161) 716
- --------------------------------------------------------------------------------
Net loss before changes
in accounting principles (7,987) (6,865) (598)
Effect of changes in accounting
principles B (114) 1,900 (2,263)
- --------------------------------------------------------------------------------
Net Loss (8,101) (4,965) (2,861)
Preferred stock dividends 47 -- --
- --------------------------------------------------------------------------------
Net loss applicable
to common shareholders $ (8,148) $ (4,965) $ (2,861)
- --------------------------------------------------------------------------------
Per Share of Common Stock Amounts:
Before changes in accounting
principles $ (14.02) $ (12.03) $ (1.05)
Effect of changes in accounting
principles B (.20) 3.33) (3.96)
- --------------------------------------------------------------------------------
Net loss applicable to common
shareholders $ (14.22) $ (8.70) $ (5.01)
- --------------------------------------------------------------------------------
Average Number of Common Shares Outstanding:
1993--573,239,240; 1992--570,896,489; 1991--572,003,382
The notes on pages 36 through 62 are an integral part of this statement.
Management Discussion
International Business Machines Corporation and Subsidiary Companies 33
Consolidated Statement of Financial Position
(Dollars in millions)
- --------------------------------------------------------------------------------
At December 31: Notes 1993 1992
Assets
- --------------------------------------------------------------------------------
Current Assets:
Cash $ 873 $ 1,090
Cash equivalents 4,988 3,356
Marketable securities, at cost, which approximates
market C 1,272 1,203
Notes and accounts receivable--trade, net of
allowances 11,676 12,829
Sales-type leases receivable 6,428 7,405
Other accounts receivable 1,308 1,370
Inventories D 7,565 8,385
Prepaid expenses and other current assets 5,092 4,054
- --------------------------------------------------------------------------------
Total Current Assets 39,202 39,692
- --------------------------------------------------------------------------------
Plant, Rental Machines and Other Property E 47,504 52,786
Less: Accumulated depreciation 29,983 31,191
- --------------------------------------------------------------------------------
Plant, Rental Machines and Other Property--Net 17,521 21,595
- --------------------------------------------------------------------------------
Investments and Other Assets:
Software, less accumulated amortization
(1993, $10,143; 1992, $8,531) 3,703 4,119
Investments and sundry assets f 20,687 21,299
- --------------------------------------------------------------------------------
Total Investments and Other Assets 24,390 25,418
- --------------------------------------------------------------------------------
Total Assets $ 81,113 $ 86,705
- --------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
- --------------------------------------------------------------------------------
Current Liabilities:
Taxes $ 1,589 $ 979
Short-term debt G 12,097 16,467
Accounts payable 3,400 3,147
Compensation and benefits 2,053 3,476
Deferred income 3,575 3,316
Other accrued expenses and liabilities 10,436 9,352
- --------------------------------------------------------------------------------
Total Current Liabilities 33,150 36,737
- --------------------------------------------------------------------------------
Long-term debt H 15,245 12,853
Other liabilities N 11,177 7,461
Deferred income taxes J 1,803 2,030
- --------------------------------------------------------------------------------
Total Liabilities 61,375 59,081
- --------------------------------------------------------------------------------
Stockholders' Equity:
Preferred stock, par value $.01 per share--shares
authorized: 150,000,000 Shares Issued:
1993--11,250,000; 1992--None i 1,091 --
Common stock, par value $1.25 per share--shares
authorized: 750,000,000 Shares Issued:
1993--581,388,475; 1992--571,791,950 6,980 6,563
Retained earnings 10,009 19,124
Translation adjustments 1,658 1,962
Treasury stock, at cost (shares: 1993--2,679;
1992--356,222) -- (25)
- --------------------------------------------------------------------------------
Total Stockholders' Equity 19,738 27,624
- --------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 81,113 $ 86,705
- --------------------------------------------------------------------------------
The notes on pages 36 through 62 are an integral part of this statement.
Management Discussion
International Business Machines Corporation and Subsidiary Companies 34
(Dollars in millions)
- -------------------------------------------------------------------------------
For the year ended December 31: 1993 1992 1991
Cash Flow from Operating Activities:
Net loss $ (8,101) $ (4,965) $ (2,861)
Adjustments to reconcile net loss to cash
provided from operating activities:
Effect of changes in accounting principles 114 (1,900) 2,263
Effect of restructuring charges 5,230 8,312 2,793
Depreciation 4,710 4,793 4,772
Amortization of software 1,951 1,466 1,564
Loss (gain) on disposition of investment
assets 151 54 (94)
Other changes that provided (used) cash:
Receivables 1,185 1,052 (886)
Inventories 583 704 (36)
Other assets (10) (3,396) 5
Accounts payable 359 (311) 384
Other liabilities 2,155 465 (1,179)
- -------------------------------------------------------------------------------
Net cash provided from operating
activities 8,327 6,274 6,725
- ------------------------------------------------------------------------------
Cash Flow from Investing Activities:
Payments for plant, rental machines
and other property (3,154) (4,751) (6,497)
Proceeds from disposition of plant,
rental machines and other property 793 633 645
Investment in software (1,507) (1,752) (2,014)
Purchases of marketable securities and
other investments (2,721) (3,284) (4,848)
Proceeds from marketable securities and
other investments 2,387 3,276 5,028
- -------------------------------------------------------------------------------
Net cash used in investing activities (4,202) (5,878) (7,686)
- -------------------------------------------------------------------------------
Cash Flow from Financing Activities:
Proceeds from new debt 11,794 10,045 5,776
Payments to settle debt (8,741) (10,735) (4,184)
Short-term borrowings less than 90 days
-- net (5,247) 4,199 2,676
Proceeds from preferred stock 1,091 -- --
Common stock transactions net 122 (90) 67
Payments to purchase and retire common stock -- -- (196)
Cash dividends paid (933) (2,765) (2,771)
- -------------------------------------------------------------------------------
Net cash (used in) provided from financing
activities (1,914) 654 1,368
- -------------------------------------------------------------------------------
Effect of exchange rate changes on cash
and cash equivalents (796) (549) (315)
- -------------------------------------------------------------------------------
Net change in cash and cash equivalents 1,415 501 92
- -------------------------------------------------------------------------------
Cash and cash equivalents at January 1 4,446 3,945 3,853
- -------------------------------------------------------------------------------
Cash and cash equivalents at
December 31 $ 5,861 $ 4,446 $ 3,945
- -------------------------------------------------------------------------------
Supplemental Data:
Cash paid during the year for:
Income taxes $ 452 $ 1,297 $ 2,292
Interest $ 2,410 $ 3,132 $ 2,617
- -------------------------------------------------------------------------------
The notes on pages 36 through 62 are an integral part of this statement.
Management Discussion
International Business Machines Corporation and Subsidiary Companies 35
(Dollars in millions)
Preferred Common Retained Translation Treasury
Stock Stock Earnings Adjustments Stock Total
1991
Stockholders' Equity, January 1, 1991 $ -- $ 6,357 $ 32,912 $ 3,309 $ (25) $ 42,553
Net loss (2,861) (2,861)
Cash dividends declared--common stock (2,771) (2,771)
Common stock issued under employee
plans (1,857,904 shares) 172 172
Purchases (7,306,058 shares) and sales
(7,201,997 shares) of treasury stock
under employee plans--net (125) (6) (131)
Common stock purchased and retired
(2,127,400 shares) (24) (172) (196)
Tax reductions--employee plans 26 26
Translation adjustments (113) (113)
- ------------------------------------------------------------------------------------------------------------
Stockholders' Equity, December 31, 1991 -- 6,531 26,983 3,196 (31) 36,679
1992
Net loss (4,965) (4,965)
Cash dividends declared--common stock (2,765) (2,765)
Common stock issued under employee
plans (442,581 shares) 26 26
Purchases (8,097,681 shares) and sales
(8,073,124 shares) of treasury stock
under employee plans--net (129) 6 (123)
Tax reductions--employee plans 6 6
Translation adjustments (1,234) (1,234)
- ------------------------------------------------------------------------------------------------------------
Stockholders' Equity, December 31, 1992 -- 6,563 19,124 1,962 (25) 27,624
1993
Net loss (8,101) (8,101)
Cash dividends declared--common stock (905) (905)
Cash dividends declared--preferred stock (47) (47)
Preferred stock issued (11,250,000 shares) 1,091 1,091
Common stock issued under employee
plans (3,765,854 shares) 159 159
Common stock issued to U.S. pension
plan fund (5,828,970 shares) 258 258
Purchases (6,099,023 shares) and sales
(6,452,566 shares) of treasury stock
under employee plans--net (62) 25 (37)
Translation adjustments (304) (304)
- ------------------------------------------------------------------------------------------------------------
Stockholders' Equity,
December 31, 1993 $ 1,091 $ 6,980 $ 10,009 $ 1,658 $ -- $ 19,738
- ------------------------------------------------------------------------------------------------------------
The notes on pages 36 through 62 are an integral part of this statement.
International Business Machines Corporation and Subsidiary Companies 36
a Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of International
Business Machines Corporation and its majority owned subsidiary companies.
Investments in business entities in which IBM does not have control, but has
the ability to exercise significant influence over operating and financial
policies (generally 20 percent ownership), are accounted for by the equity
method. Other investments are accounted for by the cost method.
Revenue
Revenue is recognized from hardware sales or sales-type leases when the product
is shipped; from software when the program is shipped, as monthly license fees
accrue, or over the term of the post-contract customer support arrangement;
from maintenance and services over the contractual period, or as the services
are performed; from rentals under operating leases in the month in which they
accrue; and from financing at level rates of return over the term of the lease
or receivable. Reserves are established to provide for instances where customer
acceptance does not take place and for other potential price adjustments.
Selling Expenses
Selling expenses are charged against income as incurred.
Income Taxes
Income tax expense is based on reported earnings before income taxes. Deferred
income taxes reflect the impact of temporary differences between the amounts of
assets and liabilities recognized for financial reporting purposes and such
amounts recognized for tax purposes. In accordance with Statement of Financial
Accounting Standards (SFAS) 109, these deferred taxes are measured by applying
currently enacted tax laws. In years prior to 1992, deferred taxes were
accounted for in accordance with SFAS 96.
Translation of Non-U.S. Currency Amounts
For non-U.S. subsidiaries that operate in a local currency environment, assets
and liabilities are translated to U.S. dollars at year-end exchange rates.
Income and expense items are translated at average rates of exchange prevailing
during the year. Translation adjustments are accumulated in a separate
component of stockholders' equity. For non-U.S. subsidiaries and branches that
operate in U.S. dollars or whose economic environment is highly inflationary,
inventories and plant, rental machines and other property are translated at
approximate rates prevailing when acquired. All other assets and liabilities
are translated at year-end exchange rates. Inventories charged to cost of sales
and depreciation are translated at historical rates. All other income and
expense items are translated at average rates of exchange prevailing during the
year. Gains and losses that result from translation are included in earnings.
Cash Equivalents
All highly liquid investments with a maturity of three months or less at date
of purchase are considered to be cash equivalents.
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 37
Inventories
Raw materials, work in process, and finished goods are stated at the lower of
average cost or market.
Depreciation
Plant, rental machines and other property are carried at cost, and depreciated
over their estimated useful lives using the straight-line method.
Software
Costs related to the conceptual formulation and design of licensed programs are
expensed as research and development. Costs incurred subsequent to
establishment of technological feasibility to produce the finished product are
generally capitalized. The annual amortization of the capitalized amounts is
the greater of the amount computed based on the estimated revenue distribution
over the products' revenue-producing lives, or the straight-line method, and
generally over periods from two to six years. Periodic reviews are performed to
ensure that the unamortized program costs remain recoverable over future
revenues. Costs to support or service licensed programs are charged against
income as incurred, or when related revenue is recognized, whichever occurs
first.
Retirement Plans and Nonpension Postretirement Benefits
Current service costs of retirement plans and postretirement healthcare and
life insurance benefits are accrued in the period. Prior service costs
resulting from amendments to the plans are amortized over the average remaining
service period of employees expected to receive benefits.
Goodwill
Goodwill is charged to earnings on a straight-line basis over the periods
estimated to be benefited, currently not exceeding five years.
Common Stock
Common stock refers to the $1.25 par value capital stock, as designated in the
company's Certificate of Incorporation. Earnings (loss) per common share
amounts are computed by dividing earnings (loss) after deduction of preferred
stock dividends by the average number of common shares outstanding.
b Accounting Changes
In the fourth quarter of 1993, the company implemented Statement of Financial
Accounting Standards (SFAS) 112, "Employers' Accounting for Postemployment
Benefits," effective as of January 1, 1993. While the company has generally
been in compliance with the standard, a charge was taken to recognize the cost
of certain benefits which are primarily healthcare for employees on disability.
The company's previous practice was to recognize these costs as incurred. The
company's practice is to accrue the cost of benefits when it becomes probable
that such benefits will be paid and the amounts can be estimated. The cost of
benefits provided to other former and inactive employees has been recognized on
an accrual basis and are not affected by this change. The cumulative effect of
adopting this statement resulted in a one-time charge of $114 million (net of
approximately $61 million of income tax benefits). The ongoing annual impact of
this change is not expected to have a material effect on future earnings. Prior
years' consolidated financial statements have not been restated to reflect this
change.
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 38
In 1992, the company implemented SFAS 109, "Accounting for Income Taxes." This
statement superseded the previous accounting standard for income taxes, SFAS
96, which the company adopted in 1988. Under SFAS 109, the company recognizes
deferred tax assets if it is more likely than not that a benefit will be
realized. The cumulative effect of this accounting change, which resulted in
recognizing previously unrecognized tax benefits for years prior to January 1,
1992, increased net earnings for 1992 by $1,900 million, or $3.33 per common
share. Income taxes for 1991 have not been restated for this change. Further
discussion is included on pages 42 through 44.
The company implemented SFAS 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," on the immediate recognition basis effective as
of January 1, 1991. This statement requires that the cost of these benefits,
which are primarily healthcare benefits, be recognized in the financial
statements during the employee's active working career. The company's previous
practice was to accrue these costs principally at retirement. Further
discussion is included on pages 54 through 56.
In May 1993, the Financial Accounting Standards Board issued SFAS 114,
"Accounting by Creditors for Impairment of a Loan." Under SFAS 114, creditors
should evaluate the collectibility of both contractual interest and principal
of all receivables when assessing the need for a loss accrual. Additionally,
SFAS 114 requires creditors to measure all loans that are restructured in a
troubled debt restructuring involving a modification of terms to reflect the
time value of money. This statement is effective for fiscal years beginning
after December 15, 1994. In May 1993, the Financial Accounting Standards Board
issued SFAS 115, "Accounting for Certain Investments in Debt and Equity
Securities," which prescribes the accounting for debt and equity securities
held as assets. This statement is effective for fiscal years beginning after
December 15, 1993. It is expected that the implementation of these statements
will not result in a material charge to the results of operations in the year
of adoption.
c Marketable Securities
At December 31:
(Dollars in millions) 1993 1992
U.S. government securities $ 702 $ 698
Time deposits and other bank obligations 515 435
Non-U.S. government securities and
other fixed-term obligations 55 70
Total $ 1,272 $ 1,203
Market value $ 1,272 $ 1,203
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 39
d Inventories
At December 31:
(Dollars in millions) 1993 1992
Current inventories:
Finished goods $ 1,906 $ 2,100
Work in process 5,539 6,115
Raw materials 120 170
Total current inventories 7,565 8,385
Work in process included in plant, rental
machines and other property 715 805
Total $ 8,280 $ 9,190
e Plant, Rental Machines and Other Property
At December 31:
(Dollars in millions) 1993 1992
Land and land improvements $ 1,422 $ 1,477
Buildings 13,314 13,839
Plant, laboratory and office equipment 29,829 34,500
44,565 49,816
Less: Accumulated depreciation 28,576 29,789
15,989 20,027
Rental machines and parts 2,939 2,970
Less: Accumulated depreciation 1,407 1,402
1,532 1,568
Total $ 17,521 $ 21,595
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 40
f Investments and Sundry Assets
At December 31:
(Dollars in millions) 1993 1992
Net investment in sales-type leases* $ 17,518 $ 20,875
Less: Current portion (net) 6,428 7,405
11,090 13,470
Deferred taxes 4,521 2,886
Prepaid pension cost 532 905
Installment payment receivables 703 683
Investments in business alliances 650 691
Goodwill, less accumulated amortization
(1993, $462; 1992, $288) 646 274
Other investments and sundry assets 2,545 2,390
Total $ 20,687 $ 21,299
*These leases relate to IBM equipment and are for terms generally ranging from
three to five years. Net investment in sales-type leases includes unguaranteed
residual values of approximately $760 million and $1,110 million at December
31, 1993 and 1992, and is reflected net of unearned income at these dates of
approximately $3,100 million and $4,000 million, respectively. Scheduled
maturities of minimum lease payments outstanding at December 31, 1993,
expressed as a percentage of the total, are approximately as follows: 1994, 39
percent; 1995, 31 percent; 1996, 19 percent; 1997, 8 percent; 1998 and after,
3 percent.
g Short-Term Debt
At December 31:
(Dollars in millions) 1993 1992
Commercial paper $ 3,735 $ 7,869
Short-term loans 4,356 5,342
Long-term debt: Current maturities 4,006 3,256
Total $ 12,097 $ 16,467
The weighted average interest rates for commercial paper at December 31, 1993
and 1992, were 3.9 percent and 3.5 percent, respectively.
The weighted average interest rates for short-term loans at December 31, 1993
and 1992, were 5.9 percent and 13.3 percent, respectively.
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 41
h Long-Term Debt
At December 31:
(Dollars in millions) 1993 1992
Maturities
U.S. Dollars:
Debentures:
71/2% 2013 $ 550 $
83/8% 2019 750 750
Notes:
53/4% to 75/8% 1994-2002 4,267 3,196
73/4% to 87/8% 1994-1997 102 646
9% to 101/4% 1994-2000 692 694
Medium-term note program: 3.4% to 19.0% 1994-2008 1,734 1,429
Other U.S. dollars: 3.9% to 19.8% 1994-2012 1,765 1,189
9,860 7,904
Other Currencies (average interest rate
at December 31, 1993, in parentheses):
Japanese yen (5.0%) 1994-2014 5,057 3,446
Swiss francs (5.9%) 1994-1996 699 833
European currency units (9.1%) 1994-1995 1,044 1,248
Canadian dollars (10.5%) 1994-1997 852 1,044
French francs (7.6%) 1994-2001 809 645
Australian dollars (8.2%) 1994-1996 253 326
Other (10.1%) 1994-2017 696 675
19,270 16,121
Less: Net unamortized discount 19 12
19,251 16,109
Less: Current maturities 4,006 3,256
Total $ 15,245 $ 12,853
Annual maturity and sinking fund requirements in millions of dollars on
long-term debt outstanding at December 31, 1993, are as follows: 1994, $4,006;
1995, $3,978; 1996, $2,703; 1997, $2,288; 1998, $2,098; 1999 and beyond,
$4,197.
I Preferred Stock
On June 7, 1993, the company issued 11.25 million shares of Series A Preferred
Stock, represented by 45 million depositary shares. The preferred stock is not
convertible into, or exchangeable for, shares of any other class or classes of
stock of the company. The preferred stock will have priority as to dividends
over the company's common stock. Dividends on the preferred stock are
cumulative and accrue from the date of original issue at a rate of $7.50 per
share (equivalent to $1.875 per depositary share). The preferred stock is not
redeemable prior to July 1, 2001. Thereafter, the company, at its option, may
redeem the preferred stock, in
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 42
whole or in part, at any time at a redemption price per share of $100 ($25 per
depositary share), plus accrued and unpaid dividends. Upon any dissolution,
liquidation or winding up of the affairs of the company, holders of the
preferred stock will be entitled to receive $100 per share ($25 per depositary
share) plus accrued and unpaid dividends before any distribution to holders of
the company's common stock.
J Taxes
(Dollars in millions) 1993 1992 1991
(Loss) earnings before income taxes:
U.S. operations $ (6,073) $ (7,678) $ (3,379)
Non-U.S. operations (2,724) (1,348) 3,497
$ (8,797) $ (9,026) $ 118
The (benefit) provision for income taxes by geographic
operations is as follows:
U.S. operations $ (505) $ (2,179) $ (857)
Non-U.S. operations (305) 18 1,573
Total (benefit) provision for income taxes $ (810) $ (2,161) $716
The components of the (benefit) provision for income
taxes by taxing jurisdiction are as follows:
U.S. federal:
Current $ (4) $ (115) $ 226
Deferred (890) (2,390) (799)
Net deferred investment tax credits (51) (54) (68)
(945) (2,559) (641)
U.S. state and local:
Current 26 (14) 29
Deferred 23 3 (139)
49 (11) (110)
Non-U.S.:
Current 554 1,378 1,787
Deferred (468) (969) (320)
86 409 1,467
Total (benefit) provision for income taxes $ (810) $ (2,161) $716
Social security, real estate, personal property, and other taxes 2,614
3,067 3,082
Total taxes $ 1,804 $ 906 $ 3,798
The impact of tax law changes on deferred tax assets and liabilities in 1993
was a benefit of $170 million, of which $71 million related to the U.S. and $99
million related to the non-U.S.
In 1992, the company implemented Statement of Financial Accounting Standards
(SFAS) 109, "Accounting for Income Taxes." This statement superseded the
previous accounting standard for income taxes, SFAS 96,
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 43
which the company
adopted in 1988. Both SFAS 96 and SFAS 109 require the use of the liability
method for recording deferred income taxes.
However, under SFAS 96, deferred tax assets could not be recognized unless they
offset reversals of deferred tax liabilities or could be recovered as income
tax refunds through existing loss carryback provisions. Under SFAS 109, the
company recognizes deferred tax assets if it is more likely than not that a
benefit will be realized.
The cumulative effect of this accounting change, which resulted in recognizing
previously unrecognized tax benefits for years prior to January 1, 1992,
increased net earnings for 1992 by $1,900 million, or $3.33 per common share.
Income taxes for 1991 have not been restated for this change.
Deferred income taxes reflect the impact of temporary differences between the
amount of assets and liabilities recognized for financial reporting purposes
and such amounts recognized for tax purposes.
The significant components of deferred tax assets and liabilities included on
the balance sheet were as follows:
(Dollars in millions) 1993 1992
Deferred Tax Assets
Restructuring charges $ 5,253 $ 3,882
Retiree medical benefits 1,961 1,691
Capitalized R&D 1,739 0
U.S. federal tax loss carryforwards 1,093 0
Foreign tax loss carryforwards 989 430
Foreign tax credits 885 1,490
Alternative minimum tax credits 729 663
Inventory 621 697
State and local tax loss carryforwards 566 384
Doubtful accounts 480 410
General business credits 452 438
Intracompany sales and services 440 390
Depreciation 234 421
Software costs deferred 186 285
Retirement benefits 124 212
Other 3,435 2,622
Gross deferred tax assets $ 19,187 $ 14,015
Less: Valuation allowance 5,035 1,976
Total deferred tax assets $ 14,152 $ 12,039
Deferred Tax Liabilities
Sales-type leases $ 3,118 $ 3,785
Software costs deferred 1,824 1,659
Depreciation 1,537 1,541
Retirement benefits 1,069 941
Other 1,379 1,103
Gross deferred tax liabilities $ 8,927 $ 9,029
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 44
The valuation allowance applies to U.S. federal tax credit and net operating
loss carryforwards, state and local net deferred tax assets and net operating
loss carryforwards, and net operating losses in certain foreign jurisdictions
that may expire before the company can utilize them. The net change in the
total valuation allowance for the year ended December 31, 1993, was an increase
of $3,059 million and for the year ended December 31, 1992, was an increase of
$1,647 million.
The estimated reversal periods for the largest deductible temporary differences
are: Restructuring 2 years; Retiree Medical 1-30 years.
The consolidated effective income tax rate was (9) percent in 1993, (24)
percent in 1992, and 607 percent in 1991.
A reconciliation of the company's effective tax rate to the statutory U.S.
federal tax rate is as follows:
Year ended December 31 1993 1992 1991
Statutory rate (35)% (34)% 34%
U.S. valuation allowance related to restructuring 20 6 332
Foreign tax differential 7 5 325
State and local, net (62)
Other (1) (1) (22)
Effective rate (9)% (24)% 607%
For tax return purposes, the company has available tax credit carryforwards of
approximately $2,432 million, of which $48 million expire in 1995, $461 million
expire in 1996, $712 million expire in 1998, and the remainder thereafter. No
tax credit carryforwards expire in 1997. The company also has federal, state
and local, and foreign tax loss carryforwards, the tax effect of which is
$2,648 million. Most of these carryforwards are available for fifteen years.
Undistributed earnings of non-U.S. subsidiaries included in consolidated
retained earnings amounted to $10,915 million at December 31, 1993, $12,182
million at December 31, 1992, and $13,991 million at December 31, 1991. These
earnings, which reflect full provision for non-U.S. income taxes, are
indefinitely reinvested in non-U.S. operations or will be remitted
substantially free of additional tax. Accordingly, no material provision has
been made for taxes that might be payable upon remittance of such earnings nor
is it practicable to determine the amount of this liability.
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 45
K Research, Development and Engineering
Research, development and engineering expenses amounted to $ 5,558 million in
1993, $6,522 million in 1992, and $6,644 million in 1991.
Included in these amounts were expenditures of $4,431 million in 1993, $5,083
million in 1992, and $5,001 million in 1991 for a broad program of research and
development activities covering basic scientific research in a variety of
fields and the application of scientific advances to the development of new and
improved products and their uses. Of these amounts, software-related activities
were $1,097 million, $1,161 million, and $994 million in 1993, 1992, and 1991,
respectively. In addition, expenditures for product-related engineering
amounted to $1,127 million, $1,439 million, and $1,643 million for the same
three years.
L Restructuring Actions
The company has taken a series of actions since 1985 to streamline and reduce
resources utilized in the business. During 1993 and 1992, the company recorded
restructuring charges of $8.9 billion before taxes ($8.0 billion after taxes or
$14.02 per common share) and $11.6 billion before taxes ($8.3 billion after
taxes or $14.51 per common share), respectively. These charges are summarized
in the table below:
(Dollars in billions) Reserve to be
Utilized in
Charges to Operations Charges Future
1993 1992 Total Utilized Periods
Work-force-related $ 6.0 $ 5.4 $ 11.4 $ 6.9 $ 4.5
Manufacturing capacity 1.4 4.7 6.1 2.2 3.9
Excess space 1.5 .8 2.3 .4 1.9
Other .7 .7 .7
Total restructuring charges $ 8.9 $ 11.6 $ 20.5 $ 10.2 $
10.3*
* $5.1 billion included in Other accrued expenses and liabilities, $1.6 billion
included in Other liabilities, and $3.6 billion included in Plant, Rental
Machines and Other Property in the Consolidated Statement of Financial Position
at December 31, 1993.
During 1991, the company also recorded a restructuring charge of $3.7 billion
before taxes ($2.9 billion after taxes or $5.03 per common share). The actions
contemplated in the 1991 charge were associated with work force reductions and
relocations, facility consolidations, and other related items, which have been
essentially completed.
The company records restructuring charges against operations and provides a
reserve based upon the best information available at the time the decision is
made to undertake the restructuring action. The reserves are subsequently
utilized when specific restructuring criteria are met, indicating the planned
restructuring action has occurred. Work-force-related reserves are considered
utilized at payment for either termination or acceptance of other contractual
arrangements. Manufacturing capacity reserves are considered utilized based on
execution of planned actions at each affected location. The reserve for excess
space is utilized when the remaining lease obligations are settled, or the
space has been vacated and subleased.
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 46
It is the company's policy to continue to charge normal depreciation, rent and
other operating costs relating to manufacturing capacity and excess space to
the ongoing cost of operations while they remain in business use.
The $11.4 billion of work-force-related reserves taken in 1992 and 1993
contemplated worldwide staff reductions of approximately 110,000 people.
Through 1993 approximately 75,000 people have left the company under these
programs. Although work-force-related restructuring actions through 1993 have
affected all parts of the company worldwide, the reductions have been more
heavily weighted toward positions in the United States. Remaining staff
reductions are expected to occur primarily during 1994 and be more heavily
weighted toward positions outside the United States. Included in the 1993
charge, and considered utilized, is $1.4 billion relating to the company's
pension and other postretirement plans, referred to as a "curtailment loss."
This loss is the recognition in the current period of actuarial charges that
otherwise might have been amortized over future periods.
Cash outlays associated with unutilized work-force-related reserves are
expected to be expended substantially in 1994 and 1995, except for the
curtailment portion of the charge which will be expended as required for
funding appropriate pension and other postretirement plans in future years. The
required manufacturing capacity charges will not involve substantial cash
outlays. Cash requirements related to excess space charges are expected to be
expended as follows: $575 million in 1994, $325 million in 1995, $240 million
in 1996, and $700 million in 1997 and beyond.
M Interest on Debt
Interest on borrowings of the company and its subsidiaries amounted to $2,298
million in 1993, $2,698 million in 1992, and $2,667 million in 1991. Of these
amounts, $46 million in 1993, $101 million in 1992, and $143 million in 1991
were capitalized. The remainder was charged to cost of rentals and financing,
and interest expense.
N Other Liabilities
Other liabilities consists principally of accruals for nonpension
postretirement benefits, indemnity and retirement plan reserves for non-U.S.
employees, and restructuring charges.
O Environmental
The company continues to participate in environmental assessments and cleanups
at a number of locations, including operating facilities, previously owned
facilities, Superfund and other waste sites. The company accrues for all known
environmental liabilities for remediation cost when a cleanup program becomes
probable and costs can be reasonably estimated. The amounts accrued were $77
million and $36 million at December 31, 1993 and 1992, respectively.
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 47
The amounts accrued do not cover sites which are in the preliminary stages of
investigation where neither the company's percentage of responsibility nor the
extent of cleanup required have been identified. It also excludes the cost of
internal environmental protection programs which are primarily preventive and
abatement related. While the company has received and expects to receive
insurance recoveries which offset a portion of the company's cost, the accrual
reflects gross estimated liability. Estimated environmental costs are not
expected to materially impact the financial position or results of the
company's operations in future periods. However, environmental cleanup periods
are protracted in length and earnings in future periods are subject to changes
in business conditions.
P Customer Financing
The primary focus of IBM's worldwide customer financing offerings is to support
customers in their acquisitions of IBM's products and services. This support is
provided in certain countries through financing subsidiaries, and from
operations in those countries where the company does not maintain a separate
financing subsidiary, such as Canada, Germany, Italy, and Japan. For purposes
of this note, the results of customer financing in all countries are presented
in a consistent manner.
Total assets for financing subsidiaries at December 31, 1993, were $14,661
million, compared to $16,205 million at year-end 1992. These assets were
financed by $9,728 million of debt at December 31, 1993, compared to $11,288
million at December 31, 1992. Total financing and other income from financing
subsidiaries was $2,875 million, $2,701 million, and $2,250 million for 1993,
1992, and 1991, respectively. Net earnings from financing subsidiaries for
1993, 1992, and 1991 were $322 million, $286 million, and $231 million,
respectively. These wholly owned subsidiaries are consolidated in the company's
financial statements, and are reflected in the following financial schedules in
addition to the financial results of those countries that do not have a
financing subsidiary.
For comparability purposes, the following schedules reflect the financial
position, results of operations, and cash flows for customer financing in
comparison to the company's consolidated results with customer financing
results reflected on the equity basis. This involves presenting the investment
and related return from customer financing as reflected in the company's
consolidated financial statements, within a single line item. For the statement
of financial position, customer financing's assets net of related liabilities,
and after elimination of applicable intracompany transactions, are shown
separately as a single line item, investment in customer financing.
Eliminations primarily pertain to internal mark-ups to fair value on equipment
held on operating leases, and the normal elimination of intracompany payables
and receivables. With respect to the statement of earnings, net earnings for
customer financing before applicable taxes and after elimination of related
intracompany transactions are included in the line description, Other income.
For the statement of cash flows, certain cash flow activities are reclassified
to be consistent with the classification of such activities reflected in the
company's Consolidated Statement of Cash Flows. Such reclassifications
primarily pertain to cash flow activity related to financing receivables.
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 48
Because customer financing is different in nature from the company's
manufacturing and services businesses, management believes that the
aforementioned type of comparative disclosure enhances an understanding and
analysis of the consolidated financial statements.
Statement Of Financial Position
(Dollars in millions) IBM with Customer
At December 31: Customer Financing on an
Financing Equity Basis
1993 1992 1993 1992
Assets:
Cash and cash equivalents $ 2,096 $ 1,103 $ 3,765 $
3,343
Notes and accounts receivable 8,177 8,674
Net investment in sales-type leases 17,518 20,875
Working capital financing receivables 1,898 1,581
Loans receivable 3,615 3,999
Inventories 143 138 7,466 8,263
Plant, rental machines and other
property, net of accum. depreciation 2,627 2,910 15,788
19,962
Other assets 2,551 1,765 16,679 15,399
Investment in customer financing 5,524 5,417
Total Assets $ 30,448 $ 32,371 $ 57,399 $ 61,058
Liabilities and Stockholders' Equity:
Taxes and accrued expenses $ 2,592 $ 3,249 $ 14,895 $
13,705
Other liabilities 3,825 3,413 16,555 12,806
Debt 21,131 22,397 6,211 6,923
27,548 29,059 37,661 33,434
Stockholders' equity/invested capital 2,900 3,312 19,738 27,624
Total Liabilities and Stockholders' Equity $ 30,448 $ 32,371 $
57,399 $ 61,058
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 49
Statement Of Earnings
(Dollars in millions) IBM with Customer
For the year ended December 31: Customer Financing on an
Financing Equity Basis
1993 1992 1993 1992
Finance and Other Income:
Finance income $ 2,485 $ 2,699 $ $
Rental income, net of depreciation 285 337 692 962
Sales 1,391 1,384 57,483 58,646
Other income 850 505 1,184 955
Total Finance and Other Income 5,011 4,925 59,359 60,563
Interest and other cost and expenses 3,994 3,947 68,156 69,589
Net Earnings (Loss) Before Income Taxes 1,017 978 (8,797) (9,026)
Provision (benefit) for income taxes 443 406 (810) (2,161)
Net earnings (loss) before changes in
accounting principles 574 572 (7,987) (6,865)
Effects of changes in accounting principles (114)
1,900
Net Earnings (Loss) $ 574 $ 572 $ (8,101) $ (4,965)
Statement Of Cash Flows
(Dollars in millions) IBM with Customer
For the year ended December 31: Customer Financing on an
Financing Equity Basis
1993 1992 1993 1992
Net cash provided from operating activities $ 3,004 $ 3,414 $
2,044 $ 2,864
Net cash used in
investing activities (284) (4,176) (639)
(1,706)
Net cash (used in) provided from
financing activities (1,680) 1,094 (234) (440)
Effect of exchange rate changes
on cash and cash equivalents (47) (21) (749) (528)
Net change in cash and cash
equivalents 993 311 422 190
Cash and cash equivalents at
January 1 1,103 792 3,343 3,153
Cash and cash equivalents at
December 31 $ 2,096 $ 1,103 $ 3,765 $ 3,343
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 50
Customer financing debt at December 31, 1993, consisted of borrowings directly
with external financial institutions of $17,562 million and intracompany
borrowings of $3,569 million at market rates of interest. Intracompany
borrowings are made pursuant to loan agreements between the parties.
Other liabilities represents amounts due to affiliates, and primarily consists
of trade payables arising from purchases of equipment for term leases,
installment payment agreements, and software licenses, with payment terms
comparable to those offered to IBM's external customers.
The earnings yielded a return on average invested capital of 18.4 percent in
1993, compared to 17.1 percent for the same 1992 period. Included within these
results are intracompany services and fees received for tax benefits provided
to the company resulting from tax deferrals generated by financing
transactions. Such fees are eliminated from the consolidated Statement of
Earnings.
The provision for income taxes for customer financing is based on the statutory
income tax rate of each country, calculated on a separate return basis.
Q Rental Expense and Lease Commitments
Rental expense, including amounts charged to inventories and fixed assets,
excluding amounts charged to restructuring, were $1,686 million in 1993, $2,108
million in 1992, and $2,056 million in 1991. Gross minimum rental commitments,
in millions of dollars, under non-cancellable leases for 1994, and thereafter,
are as follows: 1994, $1,395; 1995, $1,158; 1996, $1,053; 1997, $858; 1998,
$864; and after 1998, $3,256. Included in these amounts are leases for vacant
space that the company had reserved for in restructuring charges. These lease
commitments, valued in millions of dollars, are: 1994, $288; 1995, $267; 1996,
$209; 1997, $183; 1998, $174; and after 1998, $432. The company has entered
into sublease commitments, but the amounts were insignificant at December 31,
1993. These leases are principally for the rental of office premises.
R Long-Term Performance Plan
The IBM 1989 Long-Term Performance Plan provides for incentive awards to be
made to officers and other key employees. The plan is administered by the
Executive Compensation and Management Resources Committee of the Board of
Directors. The Committee determines the type of award to be granted, which may
include stock, a stock option, a Stock Appreciation Right (SAR), cash, or any
combination thereof. The number of shares made available for granting in the
year was .85 percent of IBM's projected outstanding common stock as of December
31, 1993. Prior to 1989, stock options were issued under the IBM 1986 and
predecessor Stock Option Plans.
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 51
Options allow the purchase of IBM's common stock at 100 percent of the market
price on the date of grant and have a maximum duration of 10 years. Payment by
the optionee upon exercise of an option may be made using IBM stock as well as
cash.
SARs offer eligible optionees the alternative of electing not to exercise the
related stock option, but to receive payment in cash and/or stock, equivalent
to the difference between the option price and the average market price of IBM
stock on the date of exercising the right.
The following table summarizes option activity during 1993 and 1992:
Number of shares under option 1993 1992
Balance at January 1 35,621,963 27,382,266
Options granted 13,744,772 9,723,804
Options exercised -- (461,202)
Options terminated (20,106,011) (980,494)
Options cancelled - SARs exercised -- (42,411)
Balance at December 31 29,260,724 35,621,963
Exercisable at December 31 14,636,324 21,372,943
In April 1993, the committee of the Board of Directors then responsible for
administering the plan, the Nominating and Executive Compensation Committee,
approved management's plan to allow optionees, other than executive officers,
to voluntarily forfeit all of their existing IBM stock options, granted from
1984 through 1992, in exchange for a fewer number of new stock option grants.
Under this program, 18,054,615 options, at average prices ranging from $66.94
to $159.50, were terminated and 7,405,090 new options at a price of $47.88 were
granted.
There were no options exercised in 1993. The options exercised in 1992 were at
an average option price of $62.25 per share. The shares under option at
December 31, 1993, were at option prices ranging from $43.00 to $159.50 per
share. The shares under option at December 31, 1992, were at option prices
ranging from $50.37 to $159.50 per share.
There were 6,011,858 and 1,362,687 unused shares carried forward and made
available for granting in the subsequent year as of December 31, 1993 and 1992,
respectively.
S Stock Purchase Plan
The IBM Employees Stock Purchase Plan (the "Plan") enables employees who are
not participants in IBM's stock option programs to purchase IBM common stock
through payroll deductions of up to 10 percent of eligible compensation. The
price an employee pays for a share of stock is 85 percent of the average market
price on the date the employee has accumulated enough money to buy a share.
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 52
In July 1993, the Board of Directors approved management's plan to issue,
instead of purchase on the open market, stock to be sold to employees under the
Plan.
During 1993, employees purchased 9,796,460 shares, including 6,451,066 treasury
shares, for which $419 million was paid to IBM. There were 21,702,501 reserved
unissued shares available for purchase under the Plan at December 31, 1993.
T Retirement Plans
The company and its subsidiaries have retirement plans covering substantially
all employees. The total cost of all plans for 1993, 1992, and 1991 was $1,525
million, $838 million, and $527 million, respectively.
Net periodic pension cost of the U.S. retirement plan and selected non-U.S.
plans for the years ended December 31 included the following components:
U.S. Plan Non-U.S. Plans
1993 1992* 1991* 1993 1992 1991
Expected long-term rate of
return on plan assets 9.5% 9.5% 9.0% 5-10% 5-12% 5-12%
(Dollars in millions)
Service cost:
Benefits earned during the period $ 571 $ 586 $ 569 $ 576
$ 603 $ 664
Termination incentive expenses 263 355 122 -- -- --
Interest cost on the projected
benefit obligation 1,909 1,671 1,488 1,064 1,060 924
Return on plan assets:
Actual (3,990) (1,216) (4,044) (3,036) (998) (1,269)
Deferred 1,605 (1,047) 1,961 1,891 (166) 210
Net amortizations (62) (88) (162) 12 24 3
Curtailment losses 431 -- -- 215 -- --
Net periodic pension cost $ 727 $ 261 $ (66) $ 722 $ 523
$ 532
Total net periodic pension
cost for all non-U.S. plans $ 798 $
577 $ 593
* Restated to conform with 1993 presentation.
Annual cost is determined using the Projected Unit Credit actuarial method.
Prior service cost is amortized on a straight-line basis over the average
remaining service period of employees expected to receive benefits. An
assumption is made for modified career average plans such that the average
earnings base period will be updated to the years prior to retirement.
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 53
Termination incentive expenses represent the cost of special retirement
benefits offered to employees for a short period of time in exchange for
voluntary termination of service. Curtailment losses reflect the significant
reductions in the expected years of future service caused by 1993 termination
programs and represent the immediate recognition of associated prior service
cost and a portion of previously unrecognized actuarial losses.
In the Consolidated Statement of Operations, the curtailment losses and
termination expenses, referred to above, are included in restructuring charges.
The table below provides information on the status of the U.S. retirement plan,
and selected non-U.S. plans that represent approximately 97 percent of the
total non-U.S. accumulated benefit obligations.
The funded status at December 31 was as follows:
U.S. Plan Non-U.S. Plans
1993 1992 1993 1992
Assumptions:
Discount rate 7.25% 8.5% 5-9.25% 5-10%
Long-term rate of
compensation increase 5.0% 5.0% 2.8-6.6% 3-7.5%
(Dollars in millions)
Actuarial present value of
benefit obligations:
Vested benefit obligation $ (24,736) $ (19,550) $ (12,342)
$ (11,205)
Accumulated benefit obligation $ (26,325) $ (19,588) $
(13,544) $ (12,508)
Projected benefit obligation $ (29,024) $ (22,700) $ (16,129)
$ (15,603)
Plan assets at fair value 28,198 25,196 16,159 13,682
Projected benefit obligation (in excess of)
less than plan assets (826) 2,496 30 (1,921)
Unrecognized net loss (gain) 1,550 (1,032) (1,184) 649
Unrecognized prior service cost 1,282 1,782 304 333
Unrecognized net asset established
at January 1, 1986 (1,474) (2,341) (145) (132)
Prepaid (accrued) pension cost
recognized in the statement of
financial position $ 532 $ 905 $ (995) $ (1,071)
The U.S. plan's vested benefit obligation, accumulated benefit obligation and
projected benefit obligation increased in 1993 primarily as a result of a
change in the discount rate and the curtailment. The projected benefit
obligation increased $3,938 million from the change in discount rate and $1,105
million as a result of the curtailment.
It is the company's practice to fund amounts for pensions sufficient to meet
the minimum requirements set forth in applicable employee benefit and tax laws,
and such additional amounts as the company may determine
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 54
to be appropriate from time to time. In July 1993, the Board of Directors
authorized the issuance of up to 15 million shares of IBM common stock to be
contributed to the U.S. Pension Plan Fund through 1994. There were 9,171,030
shares remaining of that authorization at December 31, 1993. The assets of the
various plans include corporate equities, government securities, corporate debt
securities, and income-producing real estate.
U.S. Plan: U.S. regular, full-time, and part-time employees are covered by a
noncontributory plan which is funded by company contributions to an irrevocable
trust fund, which is held for the sole benefit of employees. Monthly retirement
benefits generally represent the greater of a fixed amount per year of service,
or a percent of career compensation. For plan purposes, effective April 1,
1993, annual compensation before January 1, 1994, is defined as the average
annual compensation paid for the years 1989 through 1993. Benefits become
vested upon the completion of five years of service. The company introduced
plan amendments in 1991 including the elimination of all retirement age
reduction factors for employees who retire with 30 or more years of service,
and a new provision that provides additional income in a tax-deferred manner to
employees at retirement. The number of individuals receiving benefits at
December 31, 1993 and 1992, was 77,664 and 69,153, respectively.
Non-U.S. Plans: Most subsidiaries and branches outside the United States have
retirement plans covering substantially all employees, under which funds are
deposited under various fiduciary-type arrangements, annuities are purchased
under group contracts, or reserves are provided. Retirement benefits are based
on years of service and the employee's compensation, generally during a fixed
number of years immediately prior to retirement. The ranges of assumptions used
for the non-U.S. plans reflect the different economic environments within the
various countries.
U Nonpension Postretirement Benefits
The company and its U.S. subsidiaries have defined benefit postretirement plans
that provide medical, dental, and life insurance for retirees and eligible
dependents. In 1993, the company applied plan cost maximums to those who
retired prior to January 1, 1992. These maximums will take effect beginning
with the year 2001. Plan cost maximums were established in 1990 for those
employees retiring after December 31, 1991.
Effective January 1, 1991, the company and its subsidiaries implemented on the
immediate recognition basis, Statement of Financial Accounting Standards (SFAS)
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions."
This statement requires that the cost of these benefits, which are primarily
for healthcare, be recognized in the financial statements during the employee's
active working career. The company's previous practice was to accrue these
costs principally at retirement.
The transition effect of adopting SFAS 106 on the immediate recognition basis,
as of January 1, 1991, resulted in a charge of $2,263 million to 1991 earnings,
net of approximately $350 million of income tax benefits. This charge includes
a previously unrecognized accumulated postretirement benefit obligation of
approximately $4.8 billion, offset by $2.2 billion related to plan assets and
accruals under the company's previous accounting practice. This obligation was
determined by application of the terms of medical, dental, and life insurance
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 55
plans, including the effects of established maximums on covered costs, together
with relevant actuarial assumptions and healthcare cost trend rates projected
at annual rates ranging ratably from 14 percent in 1991 to 6 percent through
the year 2007.
The healthcare cost trend rate was 13 percent in 1993. The effect of a 1
percent annual increase in these assumed cost trend rates would increase the
accumulated postretirement benefit obligation by approximately $70 million; the
annual costs would not be materially affected.
Net periodic postretirement benefit cost for the years ended December 31
included the following components:
1993 1992* 1991*
Expected long-term rate of return on plan assets 9.5% 9.5% 9.0%
(Dollars in millions)
Service cost:
Benefits attributed to service during the period $ 53 $ 78 $94
Termination incentive expenses -- 71 38
Interest cost on the accumulated
postretirement benefit obligation 566 485 389
Return on plan assets:
Actual (201) (67) (325)
Deferred 84 (59) 198
Net amortizations and other 29 (61) --
Curtailment loss 732 -- --
Net periodic postretirement benefit cost $ 1,263 $ 447 $ 394
*Restated to conform with 1993 presentation.
In the Consolidated Statement of Operations, the curtailment loss and
termination expenses referred to above are included in restructuring charges.
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 56
The table below provides information on the status of the plans.
The funded status at December 31 was as follows:
1993 1992
Assumed discount rate 7.25% 8.5%
(Dollars in millions)
Accumulated postretirement benefit obligation:
Retirees $ (5,761) $ (5,194)
Fully eligible active plan participants (673) (739)
Other active plan participants (927) (988)
Total (7,361) (6,921)
Plan assets at fair value 1,366 1,453
Accumulated postretirement benefit obligation in
excess of plan assets (5,995) (5,468)
Unrecognized net loss 1,431 1,098
Unrecognized prior service cost (828) 241
Accrued postretirement benefit cost recognized
in the statement of financial position $ (5,392) $ (4,129)
In 1993, the accumulated postretirement benefit obligation increased $830
million as a result of the change in the assumed discount rate and $675 million
from the curtailment. The plan change allowing the company to limit the amount
it contributes for providing retiree healthcare benefits reduced the
accumulated postretirement benefit obligation $1,011 million.
It is the company's practice to fund amounts for postretirement benefits with
an independent trustee, as deemed appropriate from time to time. The plan
assets include corporate equities and government securities. The accounting for
the plan is based on the written plan.
Certain of the company's non-U.S. subsidiaries have similar plans for retirees.
However, most retirees outside the United States are covered by
government-sponsored and administered programs, and the obligations and cost of
these programs are not significant to the company.
V Lines of Credit
As part of the company's ongoing efforts toward greater centralization of its
treasury activities and to ensure appropriate liquidity levels, in December
1993 the company entered into a $10.0 billion committed global credit facility
with 81 banks worldwide. This global credit facility will replace most of the
existing committed credit facilities and some of the uncommitted credit
facilities currently in place throughout the world. Unused lines of credit from
previously existing credit arrangements for those geographies which have not
been replaced as of December 31, 1993, by the worldwide credit facility, were
$5,707 million. Consequently,
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 57
total available committed and uncommitted lines of credit at December 31, 1993,
were $15,707 million, compared to $6,950 million at December 31, 1992. Interest
rates on borrowings vary from country to country depending on local market
conditions.
W Sales and Securitization of Receivables
During 1993, total cash proceeds from the sale and securitization of trade and
financing receivables to investors were $6.8 billion, as part of the company's
worldwide program of securitizing assets and improving its liquidity. Of the
total proceeds of $6.8 billion, approximately $2.5 billion represents the net
year-over-year increase in securitized receivables. During 1993, no material
gain or loss resulted from these transactions. Recourse amounts associated with
the aforementioned sales and securitization activities are expected to be
minimal, and adequate reserves are in place to cover potential losses.
Prepaid expenses and other current assets on the Consolidated Statement of
Financial Position include $751 million of net assets that have been
reclassified pending the sale of FSC, as discussed on page 30.
X Financial Instruments
In assessing the fair value of financial instruments, at December 31, 1993, the
company has used a variety of methods and assumptions, which were based on
estimates of market conditions and risks existing at that time. For certain
instruments, including cash and cash equivalents, non-trade accounts payable
and accruals, and short-term debt, it was assumed that the carrying amount
approximated fair value for the majority of these instruments because of their
short maturity. Quoted market prices or dealer quotes for the same or similar
instrument were used for the majority of marketable securities, long-term
investments and long-term debt. Other techniques, such as option pricing
models, estimated discounted value of future cash flows, replacement cost, and
termination cost, have been used to determine fair value for the remaining
financial instruments. These values merely represent a general approximation of
possible value and may never actually be realized.
The estimated fair values of the company's financial instruments, both on and
off the balance sheet, are summarized on the following page.
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 58
At December 31, 1993
(Dollars in millions) Carrying Estimated
Amount Fair Value
Cash and cash equivalents $ 5,861 $ 5,861
Marketable securities 1,272 1,272
Non-trade receivables and loans 4,120 4,153
Long-term investments 179 178
Non-trade accounts payable and accruals (3,027) (2,889)
Short-term debt (12,097) (12,096)
Long-term debt (15,245) (15,840)
Forward exchange contracts 2 (45)
Option contracts 36 43
Interest rate and currency swap agreements (37) (147)
Financial guarantees -- (749)
Some of the foregoing financial instruments have off-balance-sheet risk. In the
normal course of business, the company enters into a variety of forward
contracts, options, and swaps in order to limit its exposure to loss resulting
from adverse fluctuations in foreign currency exchange and interest rates.
The company receives significant dividends and intracompany royalties from its
non-U.S. subsidiaries. Due to the volatility of the currency markets, it is
prudent to employ the use of financial hedging instruments to minimize the
company's potential exposure on these cash flows.
In addition, in order to raise funds on a more cost-effective basis, the
company centrally borrows to meet the consolidated financing requirements of
its subsidiaries. The central financing facility in turn provides local
currency denominated debt to the individual subsidiaries via currency and
interest rate swap agreements.
These instruments are executed with credit-worthy financial institutions, and
virtually all foreign currency contracts are denominated in currencies of major
industrial countries. Gains and losses on these contracts serve as hedges in
that they offset fluctuations that would otherwise impact the company's
financial results. Costs associated with entering into such contracts are
generally amortized over the life of the instruments and are not material to
the company's financial results.
In assessing financial instruments with off-balance-sheet risk, the following
summary of contract or notional (face) amounts outstanding at year-end provides
an indication of the extent of the company's involvement in such instruments.
The company does not anticipate any material adverse effect on its financial
position resulting from its involvement in these instruments, nor does it
anticipate non-performance by any of its counterparties.
(Dollars in millions) 1993 1992
Forward exchange contracts $ 320 $ 490
Option contracts 538 1,914
Interest rate and currency swap agreements 17,244 13,690
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 59
The company does not have any significant concentrations of credit risk.
IBM has guaranteed certain loans and commitments of various ventures to which
it is a party. Additionally, the company is contingently liable for certain
receivables sold with recourse. These commitments, which in the aggregate are
approximately $2 billion, are not expected to have a material adverse effect on
the company's financial results.
Y Segment Information
IBM is in the business of helping customers solve problems through the use of
advanced information technologies. The company operates primarily in the single
industry segment that creates value by offering services, software, systems,
products, and technologies. This segment represents more than 90 percent of
consolidated revenue, operating profit, and identifiable assets. The following
schedule shows revenue by classes of similar products or services within the
information technology segment.
Financial information by geographic area is summarized on pages 61 and 62.
Revenue by Classes of Similar Products or Services
(Dollars in millions) Consolidated U.S. Only
1993 1992+ 1991+ 1993 1992+ 1991+
Information technology:
Processors* $ 10,071 $ 13,916 $ 14,954 $ 3,179 $
4,818 $ 4,717
Personal systems* 9,728 7,887 8,505 4,417 3,033
3,210
Other workstations* 2,006 2,671 3,216 689 874 1,040
Storage* 5,122 6,259 7,184 2,101 2,554 2,825
Other peripherals* 2,262 3,026 3,294 971 1,244 1,424
Software 10,953 11,103 10,498 3,898 3,883 3,760
Maintenance 7,295 7,635 7,414 2,726 2,809 2,884
Services 9,711 7,352 5,582 5,100 3,546 2,697
Financing and other 5,568 4,674 4,119 2,622 1,872
1,870
Total $ 62,716 $ 64,523 $ 64,766 $ 25,703 $
24,633 $ 24,427
+ Reclassified to conform with 1993 presentation.
* Hardware only, includes applicable rental revenue, excludes functions not
embedded, software, and maintenance.
For purposes of classifying similar information technology products, user
programmable equipment having the capability of manipulating data
arithmetically or logically and making calculations, in a manner directly
addressable by the user through the operation of a stored program, has been
classified as processors. Processors includes high-end and midrange products.
Personal systems includes personal computers and RISC System/6000 products.
Other workstations includes display-based terminals and consumer and financial
systems. Other peripherals consists of advanced function printers,
telecommunication devices, and revenue from the computer workstation printer
product line sold in 1991 to Lexmark International, Inc.
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 60
These hardware classes of products represent groupings that perform similar
functions, as opposed to the complete spectrum of products associated with
IBM's product divisions. Accordingly, they do not represent the full range of
any division's offerings, which could include related peripherals, software,
and maintenance.
Software includes both applications and systems software. Maintenance consists
of separately billed charges for maintenance. Services represent a wide range
of service offerings including consulting, education, systems development,
managed operations, and availability services. Financing and other is composed
primarily of financing revenue and products and supplies not otherwise
classified.
Some products logically fit in more than one class and are assigned to a
specific class based on a variety of factors. Over time, products tend to
overlap, merge into, or split from existing classes as a result of changing
technologies, market perceptions, and/or customer use. For example, market
demand may create requirements for technological enhancements to permit a
peripheral product to be functionally integrated with a display, a
telecommunication device, and a processor to form a workstation. Such
interchangeability and technological progress tend to make year-to-year
comparisons less valid than they would be in an industry less subject to rapid
change.
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 61
Z Geographic Areas
(Dollars in millions) 1993* 1992* 1991*
United States
Revenue - Customers $ 25,703 $ 24,633 $ 24,427
Interarea transfers 7,297 7,524 7,668
Total $ 33,000 $ 32,157 $ 32,095
Net loss (5,566) (5,545) (2,443)
Assets at December 31 38,333 42,109 43,417
Europe/Middle
East/Africa
Revenue - Customers $ 21,779 $ 24,971 $ 26,114
Interarea transfers 1,071 1,154 838
Total $ 22,850 $ 26,125 $ 26,952
Net (loss) earnings (1,695) (1,728) 1,256
Assets at December 31 24,566 26,770 30,725
Asia Pacific
Revenue - Customers $ 10,020 $ 9,672 $ 9,275
Interarea transfers 1,452 1,875 1,680
Total $ 11,472 $ 11,547 $ 10,955
Net (loss) earnings (443) 126 469
Assets at December 31 12,778 12,837 13,241
Americas
Revenue - Customers $ 5,214 $ 5,247 $ 4,950
Interarea transfers 3,458 3,452 3,932
Total $ 8,672 $ 8,699 $ 8,882
Net (loss) earnings (251) 157 204
Assets at December 31 7,359 6,990 7,121
Eliminations
Revenue $ (13,278) $ (14,005) $ (14,118)
Net (loss) earnings (32) 125 (84)
Assets (1,923) (2,001) (2,031)
Consolidated
Revenue $ 62,716 $ 64,523 $ 64,766
Net loss (7,987) (6,865) (598)
Assets at December 31 81,113 86,705 92,473
*Net (loss) earnings before effect of changes in accounting for postemployment
benefits (1993), income taxes (1992), and nonpension
postretirement benefits (1991).
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 62
Marketing and services in the United States and Canada are managed as a single
enterprise. However, in compliance with Statement of Financial Accounting
Standards 14, "Financial Reporting for Segments of a Business Enterprise," the
United States is reported as a separate geographic area. Canadian operations
are included in the "Americas" area.
Non-U.S. subsidiaries operating in local currency environments account for
approximately 85 percent of the company's non-U.S. revenue. The remaining 15
percent is from subsidiaries and branches operating in U.S. dollars or in
highly inflationary environments.
In the Europe/Middle East/Africa area, European operations accounted for
approximately 95 percent of revenue in 1993, 1992, and 1991.
Interarea transfers consist principally of completed machines, subassemblies
and parts, and software. Machines, subassemblies and parts are generally
transferred at an intracompany selling price. Software transfers represent
license fees paid by non-U.S. subsidiaries. The intracompany selling price that
relates to fixed asset transfers is capitalized and depreciated by the
importing area.
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies 63
Five-Year Comparison of Selected Financial Data
(Dollars in millions except per share amounts) 1993 1992 1991 1990 1989
For the Year:
Revenue $ 62,716 $ 64,523 $ 64,766 $ 68,931 $
62,654
Net (loss) earnings before
changes in accounting principles (7,987) (6,865) (598) 5,967
3,722
Per share of common stock (14.02) (12.03) (1.05) 10.42 6.41
Effect of accounting changes* (114) 1,900 (2,263) -- --
Per share of common stock (.20) 3.33 (3.96) -- --
Net (loss) earnings (8,101) (4,965) (2,861) 5,967 3,722
Per share of common stock (14.22) (8.70) (5.01) 10.42 6.41
Cash dividends paid on common stock 905 2,765 2,771 2,774
2,752
Per share of common stock 1.58 4.84 4.84 4.84 4.73
Investment in plant, rental machines
and other property 3,232 4,698 6,502 6,548 6,410
Return on stockholders' equity -- -- -- 14.8% 9.6%
At End of Year:
Total assets $ 81,113 $ 86,705 $ 92,473 $ 87,568 $
77,734
Net investment in plant, rental machines
and other property 17,521 21,595 27,578 27,241 24,943
Working capital 6,052 2,955 7,018 13,313 13,875
Total debt 27,342 29,320 26,947 19,545 16,717
Stockholders' equity 19,738 27,624 36,679 42,553 38,252
*1993, postemployment benefits; 1992, income taxes; 1991, nonpension
postretirement benefits.
Selected Quarterly Data
(Dollars in millions Net Per Share Common Stock
except per share Gross (Loss) (Loss) Stock Prices
and stock prices) Revenue Profit Earnings Earnings Dividends High Low
1993 First quarter $ 13,058 $ 5,162 $ (399)* $ (.70)*$
.54 $ 57.13 $ 45.88
Second quarter 15,519 5,974 (8,036) (14.10) .54
54.38 47.13
Third quarter 14,743 5,602 (48) (.12) .25
49.75 40.63
Fourth quarter 19,396 7,410 382 .62 .25
59.88 42.13
Total $ 62,716 $ 24,148 $ (8,101) $ (14.22)** $ 1.58
1992 First quarter $ 14,037 $ 7,133 $ 2,542+ $ 4.45+$
1.21 $ 98.13 $ 83.13
Second quarter 16,224 7,863 734 1.29
1.21 98.63 81.63
Third quarter 14,702 6,779 (2,778) (4.87)
1.21 100.38 80.00
Fourth quarter 19,560 7,679 (5,463) (9.57)
1.21 81.13 48.75
Total $ 64,523 $ 29,454 $ (4,965) $ (8.70) $ 4.84
* Includes charge of $114 million, or $.20 per common share, cumulative
effect of change in accounting for postemployment benefits.
** The sum of the quarters' earnings per share does not equal the
year-to-date earnings per share due to changes in average shares calculations.
This is in accordance with prescribed reporting requirements.
+ Includes benefit of $1,900 million, or $3.33 per share, cumulative effect
of change in accounting for income taxes.
There were 741,047 common stockholders of record at December 31, 1993. During
1993, common stockholders received $905 million in cash dividends. The regular
quarterly common stock cash dividend payable March 10, 1994, will be at the
rate of $.25 per share. This dividend will be IBM's 316th consecutive quarterly
cash dividend. The stock prices reflect the high and low prices for IBM's
common stock on the New York Stock Exchange composite tape for the last two
years.