IBM 1997 Annual Report Download

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IBM
1997annualreport
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Table of contents

  • Page 1
    the newblUe

  • Page 2

  • Page 3
    ... trans forming an enterprise . It turns out their work is part of something much bigger. Information technology is changing every aspect of life . H ow we work, learn, and govern ourselves. H ow we think about communication and culture . H ow we think . IBM is at the center of this global revolution...

  • Page 4
    Louis V. Gerstner, Jr. Chairman and Chief Exec ut ive Offic er

  • Page 5
    ... furiously to replicate. place worth has increased by more than $73 billion. Last year we split the stock for the first time since 1979. If you don't read any further in this annual report, know that IBM's comeback is on track and doesn't require a major course correction. But I hope you will...

  • Page 6
    ... U.S. data network services unit of the IBM Global Network. After all these investments, we still had substan- tial cash on hand to return to shareholders - directly, via dividends, and indirectly, via our ongoing stock buyback program (another $7.1 billion of IBM shares 4 IBM 1997 annualrepo rt

  • Page 7
    ..., rental machines and other property Working capital Total debt Stockholders' equity Number of employees in IBM / wholly owned subsidiaries Number of common stock holders * Ad just ed t o reflec t a t w o- for- one sp lit of t he c om m on st oc k effec t ive M ay 9, 1997 $ $ $ $ $ 81,499 18,347...

  • Page 8
    ... to market faster than ever before. In 1997 alone: continued as the leader in mobile systems. And we introduced a • Deep Blue -a specially programmed RS/ 6000 SP new line of Microsoft Windows NT-based workstations in 1997, the IBM IntelliStation. superco mputer - redefined the way humanity...

  • Page 9
    ... our control, macroeconomic factors that affect our near-term performance. We saw this in the striking negative impact of world currencies and weakness in some A sian reductions in cost. IBM has more than 50 issued and pending patents relating to the use of copper in chips, and the first devic es...

  • Page 10
    world, our customers again need integrators. They need secure, reliable, scalable technology - in other words, IBM-style enterprise computing. And capital investments ( $ in billio ns) turn IBM into the world's premier knowledge management company. We believe very strongly that the age-old ...

  • Page 11
    ... new IBM aren't daunted to thank Dr. Brown for his many years of support and service to our company, and express my personal gratitude for helping me during my transition into IBM. by that prospect. They're fired up by it. And so am I. Louis V. Gerstner, Jr. Chairman and Chief Exec ut ive Offic...

  • Page 12

  • Page 13
    ...T he technology. T he pace. T he players. What's far more interesting is what incites change. Every revolution, Every school of philosophy, Every movement worth joining, Every defining enterprise starts the same way. Not with the grand or distant, but with something near and personal. It starts the...

  • Page 14
    ... software extends the power of information technology to the world's most populous country, without asking its people to shoehorn their language and its 6,700 written characters onto a Western-style keyboard. As IBM expands in the world's emerging markets - China, Central and Eastern Europe, India...

  • Page 15
    starts here Qian Ying Wang researc h sc ient ist , IBM China Researc h Lab , Beijing 13

  • Page 16
    ... and database software - another of our strong suits. To plan their e-business strategy, they need expert assistance up front - the kind of solutions consulting we specialize in. And to implement their strategy fast and cost-effectively, they demand a range of services - like those from IBM Global...

  • Page 17
    ...400 d evelop m ent ; Syd Jones, c orp orat e ad vert ising. M i d d l e r o w : Jennifer Kilian, e- b usiness w eb sit e; Oly Jimenez- Losad a, e- b usiness servic... es; Sand esh Bhat and M aria Arb ust o, e- b usiness int ranet . B o t t o m r o w : Deb orah Drakeford , Net finit y servers,...

  • Page 18
    ...; AUSTIN, TX ( - BIOS EMULATION OF A HARD FILE IMAGE AS A DISKETTE (DATA PROCESSING SYSTEM) - WILLIAMS DONALD D; BOCA RATON, FL (US) US5692182 - BUFFERPOOL COHERENCY FOR IDENTIFYING AND RETRIEVING VERSIONS OF WORK ALLEN; SAN JOSE, CA (US) US5692180 - OBJECT-ORIENTED CELL DIRECTORY DATABASE FOR...

  • Page 19
    ...D; BOCA RATON, FL (US) US5694575 - DIRECT I/ O CONTROL SYSTEM WITH PROCESSOR, MAIN MEMORY, AND CACHE EMPLOYING DATA CONSISTENCY RETAINING SCHEME - OBA A; TRAVIS COUNTY, TX (US) SO KIMMING; TRAVIS COUNTY, TX (US) US5694570 - METHOD AND SYSTEM OF BUFFERING DATA WRITTEN TO DIRECT ACCESS STORAGE DEVICES...

  • Page 20
    overnight suc c ess starts here 18 Le ft to right: Bijan Davari, Cyp rian Uzoh, Lisa Su, John Heid enreic h m em b ers of t he c op p er c hip t eam

  • Page 21
    ...I ND UST RY I S WAIT I NG FO R T H E NEXT MET EO R - the hot startup that rockets from obscurity behind a new piece of hardware or some hot software. They're fun to watch, and you can sometimes observe their entire life cycle before the seasons change. It takes a bit more patience to track solutions...

  • Page 22
    20

  • Page 23
    ... information into ever-smaller physical spaces. In 1997 ...ship and global teamwork: researchers in California; engineers in Japan and the United States (who integrate...IBM 's st orage b usiness: researc h, d evelop ment , manufac t uring, op erat ions, OEM market ing, sales and sup p ort from San Jose...

  • Page 24
    ... enough to build on something that can reshape the way software is developed and shared. So we didn't do Java first. But IBM and Lotus are doing plenty of firsts with Java. Lotus's new eSuite "applets" are redefining personal productivity applications like word processors and spreadsheets. With 22

  • Page 25
    Enterprise JavaBeans, IBM and Lotus are taking Java into the world of high-volume transaction processing. And more than 200 software developers are working with IBM to create Java frameworks for general ledger, order entry and other business functions as a part of IBM's "San Francisco" project. Two ...

  • Page 26
    ...'s an enduring strength of IBM. In a word, service. Everything from computer installation and testing to the work of command centers like this one, where we monitor performance across scores of customer networks and head off problems before anyone knows about them. IBM Global Services is now a $19...

  • Page 27
    here Charles Beauman op erat ions analyst , IBM Glob al Servic es Command Cent er, Bould er, Colorad o 25

  • Page 28
    ... UT E R S US E D TO - nondescript boxes, lots of wires, plenty of beige. They used to look like, well...computers. No more. From the acclaimed Aptiva home PC, to the geometric grace of the ThinkPad - already displayed in New York's Museum of Modern Art - IBM designers create products that are as...

  • Page 29
    ... ( right be lo w ) Two-in-one. This prototype integrates a network computer with a flat panel display - a full-function desktop system that relies on the Net for applications and processing power. There's more going on here than black paint and rounded edges. Microchips are becoming so inexpensive...

  • Page 30
    ... our 1997 revenue. At their fingertips are the resources of the world's greatest information technology research and development organization. Our client and research teams have developed more than 250 industry-specific solutions - many of them built as "first of a kind" projects - working directly...

  • Page 31
    h ere here here h ere here here 29

  • Page 32
    everything startshere 30 IBM 1997 annualrepo rt

  • Page 33
    ...' worth of new technology to more than 1,600 U.S. nonprofit health and human services organizations through the United Way's network of agencies. We also gave of ourselves. IBM employees volunteered nearly 4 million hours of service. IBM grants are allowing millions of people to At home. With the...

  • Page 34
    ... the U.S. Patent and Trademark Office - 326 more than the closest company. mar10 IBM announces Magic 3D may11 In a six-game match that captures the imagination of the world, a chess-playing IBM computer known as Deep Blue defeats chess grandmaster Garry Kasparov - the first time a reigning world...

  • Page 35
    ... 4 August 18 IBM introduces the AS/400e - a new series of AS/400 servers optimized to help customers take advantage of business opportunities on the Internet. The AS/400e can run Java and Microsoft Windows NT applications, provide Internet security, and support thousands of Lotus Domino users while...

  • Page 36
    ... benefits of a networked world. sep 15 IBM unveils the ScrollPoint mouse - the latest ease-of-use innovation for PC users. It supports one-touch, 360-degree scrolling for easy Internet surfing and document navigation. sep 18 IBM dedicates its new, state-of-the-art corporate headquarters in Armonk...

  • Page 37
    ... service desk and customer relationship management software. IBM's stock price closes at $104.63 on the last business day of 1997. November 17 IBM announces plans to invest $700 million to build one of the world's most advanced microchip development facilities at IBM's site in East Fishkill, New...

  • Page 38
    ... industry's most advanced information technologies, including computer systems, software, networking systems, storage devices and microelectronics. We translate these advanced technologies into value for our customers through our professional solutions and services businesses worldwide. It never...

  • Page 39
    ... Development and Engineering Global Financing Net Earnings Per Share of Common Stock Rental Expense and Lease Commitments Stock-Based Compensation Plans Stock Repurchases Employee Benefits Trust Retirement Plans Nonpension Postretirement Benefits Segment Information Geographic Areas 38 39 40 50 54...

  • Page 40
    ..., with our internal auditors, as well as with IBM management, to review accounting, auditing, internal control structure and financial reporting matters. Louis V. Gerstner, Jr. Chairman of the Board and Chief Executive Officer Lawrence R. Ricciardi Senior Vice President, General Counsel and Chief...

  • Page 41
    ... 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. Price Waterhouse LLP 1177 Avenue of the Americas New York, NY 10036 January 19, 1998 39

  • Page 42
    ...: 1997 1996 1995 Hardware sales Services Software Maintenance Rentals and financing Total 46.1% 24.6 16.4 8.1 4.8 _____ 100.0% 47.8% 20.9 17.2 9.2 4.9 _____ 100.0% 49.5% 17.7 17.6 10.3 4.9 _____ 100.0% Forward-looking and Cautionary Statements Certain statements contained in this Annual Report...

  • Page 43
    management discussion International Business Machines Corporation and Subsidiary Companies Net earnings per share of common stock were $6.18, $5.12 and $3.61 in 1997, 1996 and 1995, respectively. The following information, which is provided for informational purposes only, excludes the effects of a...

  • Page 44
    ... includes managed operation of systems, as well as systems integration design and development. Network services, which includes managed operation of networks, and product support services continued to experience good growth in revenue year over year. In 1997, the company signed service contracts...

  • Page 45
    management discussion International Business Machines Corporation and Subsidiary Companies Operating Expenses (Dollars in millions) 1997 1996 $ 16,854 1995 $ 16,766 Purchased in-process research and development expense in 1996 and 1995 was primarily associated with the Tivoli and Lotus ...

  • Page 46
    ... condition. In January 1997, Standard and Poor's revised its outlook on the company and its rated subsidiaries to positive from stable and affirmed its ratings of senior debt as A, commercial paper as A-1, and preferred stock as A-. Moody's Investors Service rates the senior long-term debt of the...

  • Page 47
    ...to capitalization of 16.1 percent and global financing debt to equity at 6.5 to 1. Stockholders' equity declined $1.8 billion to $19.8 billion at December 31, 1997. The company's ongoing stock repurchasing program (see note U, "Stock Repurchases," on page 70) and the creation of an Employee Benefits...

  • Page 48
    ... the present value computations were selected based on market interest and foreign currency exchange rates in effect at December 31, 1997. The market values that result from these computations are compared with the market values of these financial instruments at December 31, 1997. The differences in...

  • Page 49
    ... of net book value of operating leases at the end of the lease terms as of December 31, 1995, 1996 and 1997. The following table excludes approximately $49 million of estimated residual value associated with non-information technology equipment. Total Run Out of 1997 Residual Value Balance...

  • Page 50
    ... services business, as well as in emerging geographic markets, such as China. The company's complementary work force is an approximation of equivalent full-time employees hired under temporary, part-time and limited-term employment arrangements to meet specific business needs in a flexible and cost...

  • Page 51
    ... many computer hardware and software systems use only two digits to represent the year. As a result, these systems and programs may not calculate dates beyond 1999, which may cause errors in information or systems failures. With respect to its internal systems, the company is taking appropriate...

  • Page 52
    ...year ended December 31: Notes 1997 1996 1995 Revenue: Hardware sales Services Software Maintenance Rentals and financing Total revenue Cost: Hardware sales Services Software Maintenance Rentals and financing Total cost Gross profit Operating expenses: Selling, general and administrative Research...

  • Page 53
    ... depreciation Plant, rental machines and other property - net Software, less accumulated amortization (1997, $12,610; 1996, $12,199) Investments and sundry assets Total assets Liabilities and Stockholders' Equity Current liabilities: Taxes Short-term debt Accounts payable Compensation and benefits...

  • Page 54
    ... Net cash provided from operating activities Cash flow from investing activities: Payments for plant, rental machines and other property Proceeds from disposition of plant, rental machines and other property Acquisitions of Tivoli Systems, Inc. and Lotus Development Corporation - net, 1996 and 1995...

  • Page 55
    ... stock purchased and retired (97,951,400* shares) Common stock issued under employee plans (19,694,458* shares) Purchases (8,914,332* shares) and sales (7,584,432* shares) of treasury stock under employee plans - net Tax effect - stock transactions Other Stockholders' equity, December 31, 1996 1997...

  • Page 56
    ... from monthly software licenses is recognized as license fees accrue; from maintenance and services over the contractual period or as the services are performed; from rentals and operating leases, monthly as the fees accrue; and from financing at level rates of return over the term of the lease or...

  • Page 57
    ... 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...

  • Page 58
    ... in the Consolidated Financial Statements and footnotes of this annual report reflect the two-for-one stock split. D Inventories (Dollars in millions) At December 31: 1997 1996 Finished goods Work in process Raw materials Total 1,090 4,026 23 _____ $ 5,139 $ 1,413 4,377 80 _____ $ 5,870...

  • Page 59
    notes to consolidated financial statements International Business Machines Corporation and Subsidiary Companies E Plant, Rental Machines and Other Property (Dollars in millions) At December 31: 1997 $ 1996 $ Land and land improvements Buildings Plant, laboratory and office equipment Less: ...

  • Page 60
    notes to consolidated financial statements International Business Machines Corporation and Subsidiary Companies G Debt Short-term debt (Dollars in millions) At December 31: 1997 1996 $ Commercial paper Short-term loans Long-term debt: Current maturities Total 4,583 5,699 2,948 _____ $ 13,230 $...

  • Page 61
    ... securities Time deposits and other bank obligations Non-U.S. government securities and other fixed-term obligations Total Other investments:* Alliance investments on cost method * Included within Investments and sundry assets on the Consolidated Statement of Financial Position (See note F on...

  • Page 62
    ... of operations. The company's dealers had unused lines of credit available from IBM for working capital financing of approximately $2.1 billion at December 31, 1997 and 1996. Derivative Financial Instruments The company has used derivative instruments as an element of its risk management strategy...

  • Page 63
    ... assessments and cleanups at a number of locations, including operating facilities, previously owned facilities and Superfund sites. The company accrues for all known environmental liabilities for remediation costs when a cleanup program becomes probable and costs can be reasonably estimated...

  • Page 64
    notes to consolidated financial statements International Business Machines Corporation and Subsidiary Companies N Taxes (Dollars in millions) For the year ended December 31: 1997 1996 1995 Earnings before income taxes: U.S. operations Non-U.S. operations...estate, personal property and other taxes...

  • Page 65
    ... in millions) At December 31: 1997 1996 Employee benefits Capitalized research and development Restructuring charges Alternative minimum tax credits Asset impairments Deferred income General business credits Equity alliances Intracompany sales and services State and local tax loss carryforwards...

  • Page 66
    ... of scientific advances to the development of new and improved products and their uses. Of these amounts, software-related activities were $2,016 million, $1,726 million and $1,157 million in 1997, 1996 and 1995, respectively. Purchased in-process research and development expense was $435 million...

  • Page 67
    ...Global Financing IBM with Global Financing on an Equity Basis 1997 1996 1997 1996 Assets: Cash and cash equivalents Notes and accounts receivable Net investment in capital leases Working capital financing receivables Loans receivable Inventories Plant, rental machines and other property, net of...

  • Page 68
    ... ended December 31: Global Financing IBM with Global Financing on an Equity Basis 1997 1996 1995 1997 1996 1995 Finance and other income: Finance income Rental income - net Sales and services Other income Total finance and other income Interest and other costs and expenses Net earnings before...

  • Page 69
    ... December 31: 1997 1996 1995 1994 1993 Number of shares on which basic earnings per share is calculated: Average outstanding during year Add - Incremental shares under stock compensation plans - Incremental shares related to 5.75% convertible bonds (average) Number of shares on which diluted...

  • Page 70
    .... The number of shares that may be issued under the IBM 1997 Long-Term Performance Plan for awards is 50.3 million, which was 5 percent of the outstanding common stock on February 10, 1997. There were 46.4 million unused shares available for granting under the IBM 1997 Long-Term Performance Plan and...

  • Page 71
    ... the Plans allow the purchase of IBM's common stock at 100 percent of the market price on the date of grant and generally expire 10 years from the date of grant. The following table summarizes option activity of the Plans during 1997, 1996 and 1995: 1997 Wtd. Avg. Exercise Price No. of Shares under...

  • Page 72
    ... repurchase IBM common stock. The company repurchased 81,505,200 common shares at a cost of $7,128 million and 98,930,400 common shares at a cost of $5,810 million in 1997 and 1996, respectively. The repurchases resulted in a reduction of $34,338,668 and $61,831,500 in the stated capital (par value...

  • Page 73
    ... statements International Business Machines Corporation and Subsidiary Companies V Employee Benefits Trust Effective November 1, 1997, the company created an employee benefits trust to which the company contributed 10 million shares of treasury stock. The company is authorized to instruct the...

  • Page 74
    notes to consolidated financial statements International Business Machines Corporation and Subsidiary Companies The table below provides information on the status of the U.S. and material non-U.S. defined benefit retirement plans: Funded Status U.S. Plan Non-U.S. Plans (Dollars in millions) 1997...

  • Page 75
    ... 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...

  • Page 76
    ... International Business Machines Corporation and Subsidiary Companies The table below provides information on the status of the U.S. plans: Funded Status (Dollars in millions) 1997 $ 1996 Accumulated postretirement benefit obligation: Retirees Fully eligible active plan participants Other active...

  • Page 77
    ... related peripherals, software and maintenance. Services represents a full range of solutions in Network Services, which includes managed network operations and services; Professional Services, consisting of systems management or outsourcing, systems integration design and development, education...

  • Page 78
    notes to consolidated financial statements International Business Machines Corporation and Subsidiary Companies Z Geographic Areas The United States and Canada are managed as a single enterprise. However, in compliance with SFAS 14, "Financial Reporting for Segments of a Business Enterprise," the ...

  • Page 79
    notes to consolidated financial statements International Business Machines Corporation and Subsidiary Companies (Dollars in millions) 1997 United States 1996 1995 Revenue - Customers Interarea transfers Total Net earnings Assets at December 31 Europe/Middle East... at December 31 Americas $ $ 15,...

  • Page 80
    ... 62,716 (7,987) (7.01) (114) (.10) (8,101) (7.11) (7.11) 905 .79 3,232 - Total assets Net investment in plant, rental machines and other property Working capital Total debt Stockholders' equity *1993, postemployment benefits. $ 81,499 18,347 6,911 26,926 19,816 $ 81,132 17,407 6,695 22,829 21...

  • Page 81
    ...201) 324-0405. Armonk, New York 10504 (914) 499-1900 The IBM Annual Report is printed on recycled paper and is recyclable. Advantis, Aptiva, AS/400, AS/400e, Magic 3D Coloring Book, DB2, DB2 Universal Database, Deep Blue, e-business logo, IBM, IBM Global Network, IBM logo, IntelliStation, Netfinity...

  • Page 82
    ... Manager IBM Japan Susan M. Whitney General Manager Worldwide Systems Sales IBM Global Services Samuel J. Palmisano Senior Vice President and Group Executive Douglas T. Elix General Manager IBM Global Services, North America Hans-Ulrich Maerki General Manager IBM Global Services, EMEA Server Group...

  • Page 83
    ...e and p lanning; Tim Banks java d evelop m ent ba ck c o v e r: M aria Arb ust o e- b usiness int ranet ; Sukhi Sohal java d evelop m ent You've read the 1997 IBM Annual Report. Now experience it. Visit www.ibm.com/annualreport/ 1997, the IBM interactive Annual Report on the World Wide Web. And if...

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