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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549



FORM 10-K
ANNUAL REPORT
pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
FOR THE YEAR ENDED DECEMBER 31, 2014

1-2360
(Commission file number)

INTERNATIONAL BUSINESS MACHINES CORPORATION
(Exact name of registrant as specified in its charter)

NEW YORK
(State of Incorporation)
  13-0871985
(IRS Employer Identification Number)

ARMONK, NEW YORK
(Address of principal executive offices)

 

10504
(Zip Code)

914-499-1900
(Registrant's telephone number)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
  Voting shares outstanding
at February 10, 2015
  Name of each exchange
on which registered
Capital stock, par value $.20 per share   988,424,172   New York Stock Exchange
        Chicago Stock Exchange

1.375% Notes due 2019

 

 

 

New York Stock Exchange
2.750% Notes due 2020       New York Stock Exchange
1.875% Notes due 2020       New York Stock Exchange
1.25% Notes due 2023       New York Stock Exchange
2.875% Notes due 2025       New York Stock Exchange
8.375% Debentures due 2019       New York Stock Exchange
7.00% Debentures due 2025       New York Stock Exchange
6.22% Debentures due 2027       New York Stock Exchange
6.50% Debentures due 2028       New York Stock Exchange
7.00% Debentures due 2045       New York Stock Exchange
7.125% Debentures due 2096       New York Stock Exchange

         Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes  ý     No  o

         Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  o     No  ý

         Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ý     No  o

         Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ý     No  o

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ý   Accelerated filer  o   Non-Accelerated filer  o
Smaller reporting company  o       (Do not check if a smaller reporting company)

         Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes  o     No  ý

         The aggregate market value of the voting stock held by non-affiliates of the registrant as of the last business day of the registrant's most recently completed second fiscal quarter was $180.8 billion.

Documents incorporated by reference:

         Portions of IBM's Annual Report to Stockholders for the year ended December 31, 2014 are incorporated by reference into Parts I, II and IV of this Form 10-K.

         Portions of IBM's definitive Proxy Statement to be filed with the Securities and Exchange Commission and delivered to stockholders in connection with the Annual Meeting of Stockholders to be held April 28, 2015 are incorporated by reference into Part III of this Form 10-K.

   



PART I

Item 1. Business:

        International Business Machines Corporation (IBM or the company) was incorporated in the State of New York on June 16, 1911, as the Computing-Tabulating-Recording Co. (C-T-R), a consolidation of the Computing Scale Co. of America, the Tabulating Machine Co. and The International Time Recording Co. of New York. Since that time, IBM has focused on the intersection of business insight and technological innovation, and its operations and aims have been international in nature. This was signaled over 90 years ago, in 1924, when C-T-R changed its name to International Business Machines Corporation. And it continues today: The company creates value for clients through integrated solutions and products that leverage: data, information technology, deep expertise in industries and business processes, and a broad ecosystem of partners and alliances. IBM solutions typically create value by enabling new capabilities for clients that transform their businesses and help them engage with their customers and employees in new ways. These solutions draw from an industry-leading portfolio of consulting and IT implementation services, cloud and cognitive offerings, and enterprise systems and software; all bolstered by one of the world's leading research organizations.

Strategy

        In a time of unprecedented technological change, IBM's strategy remains one of innovation and a constant drive to deliver higher value for our clients.

        Key tenets of the company's strategy include:

1.     Our strategic imperatives:     Data, cloud and engagement are fundamentally transforming the IT industry, the company and our clients' businesses. The tremendous growth of data is redefining today's competitive advantage. With data as the world's new "natural resource," it is fundamentally transforming industries and professions. Yet as with all natural resources, only by refining data into actionable insights through analytics does it become valuable to the customer's business. Cloud computing—the delivery of IT and business processes as digital services—offers opportunities for enterprises to reinvent not just their operations, but their entire business model and approaches to innovation. Engagement, including mobile and social technologies, is profoundly changing how people interact and the way work gets done. Finally, these transformations are all supported and protected by high levels of security to ensure privacy and integrity of action. These three imperatives—data, cloud and engagement—are the foundation of IBM's strategy today and its vision for the future.

2.     Our unique strength:     Our ability to connect new technologies with the systems currently running today's enterprises is a key value-added service and market differentiator for IBM. Clients today want more than just adopting new technologies—they want IBM to fuse new solutions with their existing systems. This "bringing together" is what the company calls Hybrid Cloud, and IBM is uniquely able to bring this value to its clients.

3.     Our migration to higher levels of business value:     Clients look to IBM to solve their business challenges and opportunities rather than just providing technology. Our evolution over decades—from hardware to software and services, and increasingly to full-fledged business solutions—reflects this critical shift in meeting client needs. IBM brings together the full breadth of its integrated offerings and industry expertise to be essential to its clients and deliver higher value.

1.     Our Strategic Imperatives

Data: transforming industries and professions

        Fueled by the proliferation of mobile devices, social media and the infusion of technology into virtually all aspects of business, data is the world's new natural resource. Without powerful analytics, however, it is just data.

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        Across all industries, enterprises are working hard to harvest new insights from the explosion of available data—the new basis for today's competitive advantage. The advantage for enterprises increases as they apply more sophisticated approaches to refining their data, turning them into insights that are actionable and add value. The advent of cognitive computing, which mirrors the same cognitive process that people use every day to understand the world around them, is profoundly redefining the relationship between humans and information. Cognitive systems learn, navigate the language and protocols of expert communities, and communicate in natural language.

        IBM has invested more than $26 billion, including over $17 billion on more than 30 acquisitions, to build its capabilities in big data and analytics. One third of IBM Research's spending is focused on data, analytics and cognitive computing.

        In 2014, IBM reported nearly $17 billion in business analytics revenue, and the company established the Watson Group to develop and commercialize cognitive computing innovations. The company has committed a $1 billion investment to Watson, including $100 million dedicated to venture investments to support start-ups building cognitive apps through the Watson Developer Zone on Bluemix. The company is also making Watson more widely available through the Watson Ecosystem, which has grown to more than 160 partners with nearly 4,000 future partners seeking to build a new generation of cognitive apps. IBM also launched Watson Analytics, a breakthrough natural language-based cognitive service that provides instant access to powerful predictive and visual analytic tools for businesses. Through Watson Analytics, IBM is extending analytics to the end user, not just the data scientist. IBM's goal is to give every business professional access to advanced cognitive-powered predictive analytics, coupled with new forms of data.

        In addition in 2014, the company made bold moves by establishing key alliances. In the data space, the company announced a ground-breaking partnership with Twitter to incorporate Twitter's massive data streams into IBM's cloud-based analytics, customer engagement platforms and consulting services. Enterprises will now be able to understand customer sentiment more deeply and anticipate sudden shifts in moods and markets by tapping into the Twitter data in powerful new ways. This capability will also allow clients to integrate Twitter data into their own cloud services and mobile apps.

Cloud: reinventing IT

        Cloud is at the heart of the digital revolution. No enterprise is untouched by this revolution and the shifts are occurring rapidly.

        Enterprises are benefitting from cloud by using it to transform their IT and business processes into digital services. Much has been written about how cloud enables the sharing of infrastructure—this is true. However the real promise of cloud is much more profound. By forcing greater levels of standards up and down the technology value chain, new products and services, and even entire business models, are able to be created in weeks rather than months or years.

        Cloud is a catalyst for innovation. IBM has invested more than $8 billion to acquire 18 companies related to cloud, and is investing more than $1 billion to expand its global footprint to 40 datacenters worldwide. IBM now has more than 120 software-as-a-service (SaaS) offerings, and IBM Cloud supports 24 of the top 25 Fortune 500 companies, driving $7 billion of revenue for cloud-based solutions in 2014.

    SoftLayer is the foundation for IBM's expansive infrastructure-as-a-service portfolio. It offers bare metal, private cloud and virtual server instances, which means it can cover many different workloads with unprecedented performance. SoftLayer offers a built-in private network which can handle huge capacity and gives users the ability to isolate public/private networks with controls for access and location of data.

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    Bluemix is IBM's platform-as-a-service, built on the open standards foundation of Cloud Foundry and powered by SoftLayer's cloud infrastructure. SoftLayer offers cloud-based services, APIs and leading third-party services to developers in an integrated platform. Bluemix also allows them to mix and match different tools to build apps in the cloud for mobile, Web, big data and analytics—to name just a few.

    IBM Cloud marketplace brings together the company's vast portfolio of cloud capabilities, delivering a self-service, digital experience for developers, IT and business leaders. Visitors have access to a growing portfolio of cloud capabilities from IBM and qualified third-party vendors. Open integration including pre-built APIs and hybrid options enable enterprise integration and composable business models.

        The IBM Cloud is the most powerful choice for enterprise-grade environments—bringing unparalleled levels of security, performance and scalability. As a result, in 2014, IBM formed a strategic alliance with SAP to run its business applications on IBM's cloud.

Engagement: re-imagining work

        Social, mobile and unprecedented access to data are changing how individuals and institutions work together. A new class of customer has emerged: one who is empowered with knowledge, enriched by networks and expects value in return for sharing information. Enterprises must create a systematic approach to engage these newly empowered customers through more personalized interactions. IBM calls these new forms of interactions "engagement"—and includes social collaboration and mobile—both underpinned by high levels of security.

        In 2014, the mobile, social and security portfolio generated double-digit growth with mobile revenue more than tripling versus 2013, security revenue up 19 percent and social business growing 3 percent. In addition, IBM has acquired 23 companies related to mobile, social and security.

        On the mobile front, IBM and Apple formed an historic partnership to transform enterprise mobility as we know it today. Together, IBM and Apple are joining forces to bring the ease-of-use of personal apps to the enterprise environment. Together, the two companies are bringing the first wave of industry-specific apps to the market—targeting the needs of individual workers and helping to solve long-standing industry challenges.

        In addition, MobileFirst remains IBM's unified approach to help clients and partners deliver best-in-class mobile solutions, take advantage of more commercial opportunities and provide a superior customer experience.

        On the social collaboration front, in 2014, IDC named IBM the worldwide market share leader in Enterprise Social Software for the fifth consecutive year. (1) In addition, IBM Verse, powered by IBM analytics and advanced search, is a new cloud-based messaging and social collaboration solution to manage the workday. It provides a seamless user experience across social networking, meetings, chat, documents, mail, and an array of intelligent, security-rich and engaging social apps on mobile devices or the Web.

        Security is a boardroom-level issue. It is also a key enabler for the continued growth of data, cloud and engagement. Enterprises—and their clients—demand that these activities be secure as a requirement for participation.

        The magnitude, sophistication and complexity of today's security threats are growing. With the proliferation of data on mobile devices, in social media and in the cloud, breaches are more visible and

   


(1)
IDC Worldwide Enterprise Social Networks 2014-2018 Forecast and 2013 Vendor Shares, July 23, 2014.

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occur on a heightened scale. IBM Security solutions use sophisticated analytics to identify and thwart attacks in realtime—protecting our clients' information, processes and people.

        IBM Security brings to our clients high-end consulting, advanced fraud and threat protection, identity and access management, application and data security, mobile and cloud security, network and end-point protection with services for cloud.

2.     Our Unique Strength

        Data, cloud and engagement are powerful forces changing the landscape of technology and businesses. However, enterprise clients need more. Enterprises need to bring this new world of technology together with the existing systems that currently run their businesses if they are to capture their full value. This combination is what we refer to as Hybrid Cloud.

        Without bringing these worlds together, these new technologies become "islands" within the enterprise. For example, a business that invests in a social media platform engages with and captures the sentiment of individual customers. These can be valuable interactions. However, much deeper insight into the needs and wants of an individual customer comes when combining the social media interactions with the historical purchase and engagement records of that customer—as stored in existing systems. By combining these insights, the enterprise personalizes interactions in ways that are relevant and meaningful to that customer.

        IBM is unique in bringing this Hybrid world to its clients with our unparalleled strength in both the existing and the new worlds of IT.

        IBM supports its clients' mission critical processes, and remains the "go-to" platform for the enterprise. For example, more than 90 percent of the top 100 banks and the top 25 U.S. retailers run on IBM systems. In addition, nearly half of the Fortune 100 companies outsource IT operations to IBM. The company's leadership in enterprise computing provides the foundation for strategic partnerships as leading companies want to work with IBM, as evidenced by the Apple, SAP, Twitter and Tencent partnerships announced in 2014.

        Combine this with the company's strength in the new worlds of data, cloud and engagement—and IBM brings a unique and important capability to the market.

3.     Our Migration to Higher Value

        Technology by itself does not create value for a business. Technology enables a business to achieve its aspirations by facilitating richer interactions with clients and ecosystems, by unlocking deeper insight and by enabling faster actions.

        IBM has continuously evolved its mission to deliver increasingly higher levels of business value to its clients. Starting primarily as a hardware company, IBM has added a rich portfolio of software and services to add higher value.

        This next phase of IBM's transformation will realize the full breadth of the portfolio by bringing higher-value added solutions to our clients. Examples include:

    Using predictive analytics to reduce customer attrition rates through the IBM Customer Data solution.

    Detecting fraudulent claims before payments are made through the IBM Counter Fraud solution.

    Preventing costly and unscheduled downtime of equipment through early detection of anomalies with the IBM Predictive Asset Optimization solution.

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The focus on integrated solutions will make IBM a stronger partner with its clients as the company takes another step in its continuous evolution to higher levels of value.

Summary

        One constant throughout IBM's over 100-year history has been the need to continually transform the company in an ever-changing industry. Our industry, our clients—and IBM itself—is in the midst of such a fundamental transformation.

        This is a transformation of unparalleled growth and promise:

    The promise of technology to bring extraordinary levels of insight to human endeavors through advances in analytics and cognitive computing.

    The promise of the cloud as a catalyst for innovation, freeing enterprises to focus more on the uses of technology rather than just the technology itself.

    The promise of enterprises engaging with their customers, their employees and their business partners through richer, more personalized means.

    All underscored by security to help protect the integrity of every interaction.

        We are excited about the prospects for growth and value for our clients—and for IBM—and we look forward to helping our clients transform their businesses for the future.

Business Model

        The company's business model is built to support two principal goals: helping enterprise clients to become more innovative, efficient and competitive through the application of business insight and IT solutions; and providing long-term value to shareholders. The business model has been developed over time through strategic investments in capabilities and technologies that have superior long-term growth and profitability prospects based on the value they deliver to clients.

        The company's global capabilities include services, software, systems, fundamental research and related financing. The broad mix of businesses and capabilities are combined to provide integrated solutions to the company's clients.

        The business model is dynamic, adapting to the continuously changing market and economic environment. The company continues to divest certain businesses and strengthen its position through strategic organic investments and acquisitions in higher-value areas. In addition, the company has transformed itself into a globally integrated enterprise which has improved overall productivity and is driving investment and expanding participation in markets with significant long-term opportunity.

        This business model, supported by the company's financial model, has enabled the company to deliver strong earnings, cash flows and returns to shareholders over the long term.

Business Segments and Capabilities

        The company's major operations consists of five business segments: Global Technology Services and Global Business Services, which the company collectively calls Global Services, Software, Systems and Technology and Global Financing.

         Global Services : is a critical component of the company's strategy of providing IT infrastructure and business insight and solutions to clients. While solutions often include industry-leading IBM software and systems, other suppliers' products are also used if a client solution requires it. Approximately 60 percent of external Global Services segment revenue is annuity based, coming primarily from outsourcing and maintenance arrangements. The Global Services backlog provides a

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solid revenue base entering each year. Within Global Services, there are two reportable segments: Global Technology Services and Global Business Services.

         Global Technology Services (GTS) primarily provides IT infrastructure and business process services, creating business value for clients through unique technology and IP integrated services within its global delivery model. By leveraging insights and experience drawn from IBM's global scale, skills and technology, with applied innovation from IBM Research, clients gain access to leading-edge, high-quality services with improved productivity, flexibility, cost and outcomes.

GTS Capabilities

         Strategic Outsourcing : delivers comprehensive IT outsourcing services dedicated to transforming clients' existing infrastructures to consistently deliver improved quality, flexibility, risk management and financial value. The company integrates long-standing expertise in service management and technology with the ability to exploit the power of new technologies from IBM systems and software, such as cloud computing, analytics and virtualization, to deliver high performance, innovation and improved ability to achieve business objectives.

         Global Process Services: included within Strategic Outsourcing, delivers a range of offerings consisting of standardized through transformational solutions including processing platforms and business process outsourcing. These services deliver improved business results to clients through the strategic change and/or operation of the client's business processes, applications and infrastructure. Global Process Services will be integrated within Global Business Services beginning in 2015.

         Integrated Technology Services: delivers a portfolio of project-based and managed services that enable clients to transform and optimize their IT environments by driving efficiency, flexibility and productivity, while reducing costs. The standardized portfolio is built around key assets and patented software, and incorporates best practices and proven methodologies that ensure predictive quality of delivery, security and compliance.

         Cloud: delivers a comprehensive set of cloud services ranging from assisting clients with building their own private clouds, to building customized dedicated managed clouds, to allowing clients to leverage standardized cloud infrastructure services from the SoftLayer and Cloud Managed Services offerings, to creating hybrid environments linking their private and public workloads together. This portfolio of cloud offerings spans across the GTS business lines.

         Technology Support Services (Maintenance Services): delivers a complete line of support services from product maintenance through solution support to maintain and improve the availability of clients' IT infrastructures.

         Global Business Services (GBS) has the mission to deliver predictable business outcomes to the company's clients across two primary business areas: Consulting and Systems Integration and Application Management Services. These professional services deliver business value and innovation to clients through solutions which leverage industry and business process expertise. The role of GBS is to drive initiatives that integrate IBM content and solutions and drive the progress of the company's strategic imperatives. As clients transform themselves in response to market trends like big data, social and mobile computing, GBS helps clients use these technologies to reinvent relationships with their customers and realize new standards of efficacy and efficiency in the internal processes, data and applications that they use to run their businesses.

GBS Capabilities

         Consulting and Systems Integration: delivering client value with solutions in Strategy and Transformation, Application Innovation Services, Enterprise Applications and Smarter Analytics.

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Consulting is also focused on bringing to market client solutions that drive Smarter Commerce, Cloud, Mobile and Social Business.

         Application Management Services: delivers application management, maintenance and support services for packaged software, as well as custom and legacy applications. Value is delivered through advanced capabilities in areas such as application testing and modernization, cloud application services, the company's highly differentiated globally integrated capability model, industry knowledge and the standardization and automation of application management.

         Software consists primarily of middleware and operating systems software. Middleware software enables clients to integrate systems, processes and applications across a standard software platform to improve their business results, solve critical problems and gain competitive advantage within their industries. IBM middleware is designed on open standards, making it easier to integrate disparate business applications, developed by different methods and implemented at different times. Operating systems are the software engines that run computers. Approximately 70 percent of external Software segment revenue is annuity based, coming from recurring license charges, software sold "as a service" and ongoing post-contract support. The remaining revenue relates to one-time charge (OTC) arrangements in which clients pay one, up-front payment for a perpetual license. Typically, the sale of OTC software includes one year of post-contract support. Clients can also purchase ongoing post-contract support after the first year, which includes unspecified product upgrades and technical support.

Software Capabilities

         WebSphere: delivers capabilities that enable organizations to run high-performance business applications. With these applications, clients can integrate and manage business processes across their organizations with the flexibility and agility they need to respond to changing conditions. Built on services-oriented architecture (SOA), and open standards support for cloud, mobile and social interactions, the WebSphere platform enables enterprises to extend their reach and optimize interactions with their key constituents. Smarter Commerce software helps companies better manage and improve each step of their value chain and capitalize on opportunities for profitable growth, efficiency and increased customer loyalty.

         Information Management: enables clients to integrate, manage and analyze enormous amounts of data from a large variety of sources in order to gain competitive advantage and improve their business outcomes. With this approach, clients can extract real value out of their data and use it to make better business decisions. IBM's middleware and integrated solutions include advanced database management, information integration, data governance, enterprise content management, data warehousing, business analytics and intelligence, predictive analytics and big data analytics.

         Watson Solutions: the first commercially available cognitive computing platform that has the ability to interact in natural language, processing vast amounts of big data, and learning from its interactions with people and computers. As an advisor, Watson is able to sift through and understand large amounts of data delivering insights with unprecedented speeds and accuracy.

         Tivoli: helps clients optimize the value they get from their infrastructures and technology assets through greater visibility, control and automation across their end-to-end business operations. These asset management solutions foster integrated service delivery for cloud and datacenter management, enterprise endpoint and mobile device management, asset and facilities management, and storage management. Tivoli includes security systems software that provides clients with a single security intelligence platform that enables them to better secure all aspects of their enterprise and prevent security breaches.

         Workforce Solutions: enables businesses to connect people and processes for more effective communication and increased productivity through collaboration, messaging and social networking

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software. By remaining at the forefront of collaboration tools, IBM's social business offerings help organizations reap real benefits associated with social networking, as well as create a more efficient and effective workforce.

         Rational: supports software development for both IT and complex embedded system solutions, with a portfolio of products and solutions supporting DevOps and Smarter Product Development, transforming the way lines of business, development and operations work together to deliver innovation via software.

         Mobile: spans middleware and offers customers true end-to-end mobile solutions across platform and application development, mobile security, and mobile device management. Leveraging powerful analytics and usage data, customers are provided with the ability to have more compelling interactions with their clients and workforce, increasing touchpoints and deepening relationships. The mobile offerings provide the ability to increase workforce productivity through enhanced collaboration, improved knowledge sharing and increased response speed.

        In January 2015, the company made several changes designed to more effectively align its key capabilities and resources to its strategic imperatives. These changes will enable the company to respond more quickly to critical client agendas and drive higher value. Across Software, the company is transitioning its portfolio to capture growth and continue to drive innovation. The focus will be centered around analytics, security, and commerce—similar to the action the company implemented in 2014 with Watson—utilizing its software assets to improve speed and agility in bringing integrated solutions to its clients.

         Systems and Technology (STG) provides clients with innovative infrastructure technologies to help meet the new requirements of data, cloud and engagement—from deploying advanced analytics, to moving to digital service delivery with the cloud, and securing mobile transaction processing. Approximately half of Systems and Technology's server and storage sales transactions are through the company's business partners; with the balance direct to end-user clients. In addition, Systems and Technology provides leading semiconductor technology, products and packaging solutions for IBM's own advanced technology needs.

Systems and Technology Capabilities

         Servers: a range of high-performance systems designed to address capacity, security, speed and compute power needs for businesses, organizations and technical computing applications. After the divestiture of the System x industry standard server business, the portfolio includes System z, a trusted enterprise platform for integrating data, transactions and insight, and Power Systems, a system designed from the ground up for big data, optimized for scale-out cloud and Linux, and delivering open innovation with OpenPOWER. The company is also a founding member of the OpenPOWER foundation, a group of industry-leading companies working together to develop high-performance compute solutions based on the IBM POWER architecture.

         Storage: data storage products and solutions that allow clients to retain and manage rapidly growing, complex volumes of digital information. These solutions address critical client requirements for information retention and archiving, security, compliance and storage optimization including data deduplication, availability and virtualization. The portfolio consists of a broad range of software defined storage solutions, disk and tape storage systems and Flash storage and solutions.

         Technology: the company's continued leadership in systems requires ongoing investments in semiconductor and material science research and development that drives innovation that matters for our clients. In 2014, the company announced a definitive agreement to divest its Microelectronics business, and manufacturing operations. This transaction is expected to close in 2015.

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         Global Financing facilitates IBM clients' acquisition of information technology systems, software and services by providing financing solutions in the areas where the company has the expertise. The financing arrangements are predominantly for products or services that are critical to the end users' business operations. These financing contracts are entered into after a comprehensive credit evaluation and are secured by legal contracts. As a captive financier, Global Financing has the benefit of both deep knowledge of its client base and a clear insight into the products and services financed. These factors allow the business to effectively manage two of the major risks, credit and residual value, associated with financing while generating strong returns on equity. Global Financing also maintains a long term partnership with the companies' clients through various stages of IT asset life cycle—from initial purchase and technology upgrades to asset disposition decisions.

Global Financing Capabilities

         Client Financing: lease and loan financing to end users and internal clients for terms up to seven years. Assets financed are primarily IT products and services where the company has expertise. Internal financing is predominantly in support of Global Services' long-term client service contracts. Global Financing also factors a selected portion of the company's accounts receivable, primarily for cash management purposes. All internal financing arrangements are at arm's-length rates and are based upon market conditions.

         Commercial Financing: short-term inventory and accounts receivable financing to dealers and remarketers of IBM and OEM products.

         Remanufacturing and Remarketing: used equipment is returned from lease transactions, or may be surplus equipment internally or externally purchased. These assets may be refurbished or upgraded and sold or leased to new or existing clients both externally or internally. Externally remarketed equipment revenue represents sales or leases to clients and resellers. Internally remarketed equipment revenue primarily represents used equipment that is sold internally to Systems and Technology and Global Services. Systems and Technology may also sell the equipment that it purchases from Global Financing to external clients.

IBM WORLDWIDE ORGANIZATIONS

        The following worldwide organizations play key roles in IBM's delivery of value to its clients:

    Sales and Distribution

    Research, Development and Intellectual Property

    Integrated Supply Chain

Sales and Distribution

        IBM has a significant global presence, operating in more than 175 countries, with an increasingly broad-based geographic distribution of revenue. The company's Sales and Distribution organization manages the IBM global footprint, with dedicated country-based operating units focused on delivering unique value and superior experiences for clients. Within these units, client relationship professionals work with integrated teams of consultants, product specialists and delivery fulfillment teams to enable clients' business growth and innovation. These teams deliver value by understanding the clients' businesses and needs, and then bring together capabilities from across IBM and an extensive network of Business Partners to develop and implement solutions.

        By combining global expertise with local experience, IBM's geographic structure enables dedicated management focus for local clients, speed in addressing new market opportunities and timely investments in emerging opportunities. The geographic units align industry-skilled resources to serve clients' agendas. IBM extends capabilities to mid-market client segments by leveraging industry skills with marketing, Inside Sales and local Business Partner resources.

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        The company continues to invest to capture the long-term opportunity in key growth markets around the world—China, India and countries within Southeast Asia, Eastern Europe, the Middle East, Africa and Latin America. The company's major markets include the G7 countries of Canada, France, Germany, Italy, Japan, the United States (U.S.) and the United Kingdom (UK) plus Austria, the Bahamas, Belgium, the Caribbean region, Cyprus, Denmark, Finland, Greece, Iceland, Ireland, Israel, Malta, the Netherlands, Norway, Portugal, Spain, Sweden and Switzerland.

Research, Development and Intellectual Property

        IBM's research and development (R&D) operations differentiate the company from its competitors. IBM annually invests approximately 6 percent of total revenue for R&D, focusing on high-growth, high-value opportunities. IBM Research works with clients and the company's business units through global labs on near-term and mid-term innovations. It contributes many new technologies to IBM's portfolio every year and helps clients address their most difficult challenges. IBM Research also explores the boundaries of science and technology—from nanotechnology to future systems, big data analytics, secure clouds and to IBM Watson, a "cognitive" learning system.

        IBM Research also focuses on differentiating IBM's services businesses, providing new capabilities and solutions. It has the world's largest mathematics department of any public company, enabling IBM to create unique analytic solutions and actively engage with clients on their toughest challenges.

        In February 2015, the company announced a new IBM Research lab to be located in South Africa. This will be IBM Research's 13th global lab.

        In 2014, IBM was awarded more U.S. patents than any other company for the 22nd consecutive year. IBM's 7,534 patents awarded in 2014 represent a diverse range of inventions poised to enable significant innovations that will position the company to compete and lead in the emerging opportunities represented by cloud, big data and analytics, security, social and mobile. These inventions also will advance the new era of cognitive systems where machines will learn, reason and interact with people in more natural ways. It was the most U.S. patents ever awarded to one company in a single year.

        The company continues to actively seek intellectual property (IP) protection for its innovations, while increasing emphasis on other initiatives designed to leverage its IP leadership. Some of IBM's technological breakthroughs are used exclusively in IBM products, while others are licensed and may be used in IBM products and/or the products of the licensee. While the company's various proprietary IP rights are important to its success, IBM believes its business as a whole is not materially dependent on any particular patent or license, or any particular group of patents or licenses. IBM owns or is licensed under a number of patents, which vary in duration, relating to its products.

Integrated Supply Chain

        IBM has an extensive integrated supply chain, procuring materials and services globally. In 2014, the company also managed approximately $21.8 billion in procurement spending for its clients through the Global Process Services organization. The supply, manufacturing and logistics operations are integrated in one operating unit that has optimized inventories over time. Simplifying and streamlining internal processes has improved sales force productivity and operational effectiveness and efficiency. Supply chain resiliency enables IBM to reduce its risk during marketplace changes.

        The company continues to derive business value from its own globally integrated supply chain providing a strategic advantage for the company to create value for clients. IBM leverages its supply chain expertise for clients through its supply chain business transformation outsourcing service to optimize and help operate clients' end-to-end supply chain processes, from procurement to logistics.

10


Utilizing analytics, mobile, cloud and social—with numerous projects, has allowed the integrated supply chain to drive positive business outcomes for the company and its clients.

COMPETITION

        The company is a globally-integrated enterprise, operating in more than 175 countries. The company participates in a highly competitive environment, where its competitors vary by industry segment, and range from large multinational enterprises to smaller, more narrowly focused entities. Overall, across its business segments, the company recognizes hundreds of competitors worldwide.

        Across its business, the company's principal methods of competition are: technology innovation; performance; price; quality; brand; its broad range of capabilities, products and services; client relationships; the ability to deliver business value to clients; and, service and support. In order to maintain leadership, a corporation must continue to invest, innovate and integrate. The company has been executing a strategy to transform its business, including shifting to higher value market segments and offerings and increasing its capabilities through organic investments and strategic acquisitions. As the company executes its strategy, it enters new markets, such as cloud, business analytics and "as-a-service" solutions, which exposes the company to new competitors. Overall, the company is the leader or among the leaders in each of its business segments.

        A summary of the competitive environment for each business segment is included below:

Global Services:

        The services segments, GTS and GBS, operate in a highly competitive and continually evolving global market. GTS competes in strategic outsourcing, business process outsourcing, cloud services, and a wide range of technical and IT support services. GBS competes in consulting, system integration and application management services. The principal competitive factors in these business segments include: technical skills and capabilities, innovative service and product offerings, industry knowledge and experience, value and speed, price, client relationships, quality of sales and delivery, reliability, security and the availability of resources. The company's competitive advantages in the services business include its global reach and scale, global delivery model, best-of-breed process and industry skills, extensive technology expertise, services assets, an ability to deliver integrated solutions that can address clients' needs in any environment and a strong set of relationships with clients and strategic business partners worldwide. The company competes with broad based competitors including: Accenture, Amazon.com, Inc. (Amazon), Computer Sciences Corporation, Fujitsu, Google Inc., Hewlett-Packard Company (HP) and Microsoft Corporation (Microsoft); India-based service providers; the consulting practices of public accounting firms; and many companies that primarily focus on local markets or niche service areas.

Software:

        The enterprise management software market is highly competitive, and increasingly technology companies are looking to implement software solutions that will improve business outcomes for their clients. The key competitive factors in this segment include: functionality, ease-of-use, scalability, open standards, total cost-of-ownership and business value. IBM's leadership in each of these areas, and the ability to deliver solutions that drive business results, provides it with competitive advantages. The company's software business includes middleware and solutions software offerings, delivered both on-premise and "as-a-service", and operating systems. The middleware portfolio is the broadest in the industry and covers both mainframe and distributed computing environments. The middleware portfolio also underpins IBM's solutions business and enhances the business value the company brings to clients. The solutions portfolio provides comprehensive business and industry-specific offerings to new types of IT decision makers, such as chief marketing and procurement officers, chief information security

11


officers and chief financial officers. The depth and breadth of the software offerings, coupled with the company's global sales and technical support infrastructure, differentiate the software business from its competitors. The company's research and development capabilities and intellectual property patent portfolio also contribute to this segment's leadership. The company's principal competitors in this segment include CA, Inc., Microsoft, Oracle Corporation (Oracle), Salesforce.com and SAP. The company also competes with smaller, niche competitors in specific geographic or product markets worldwide.

Systems and Technology:

        The enterprise server and storage market is characterized by technology and service innovation, with competition focused on value, function, reliability, price and cost performance. New entrants are leveraging innovation in technology and delivery of services to compete against traditional providers and offerings. The company's principal competitors include Cisco Systems, Inc. (Cisco), Dell, Inc., EMC Corporation, HP and Oracle. Additionally, infrastructure-as-a-service providers such as Amazon Web Services who offer IT as a service and original device manufacturers who offer re-branded, lower cost system hardware alternatives compete with the company in this area.

        The company's investments in virtualization technologies, software optimization capabilities, power management, security, multi-operating system capabilities and the ability of its systems platforms to leverage the entire system, from the company's custom semiconductors through the software stack to increase efficiency, lower cost and improve performance, provide the company with competitive advantages in this segment. In addition, the company's research and development capabilities and intellectual property patent portfolio contribute significantly to this segment's leadership.

Global Financing:

        Global Financing provides client financing, commercial financing and participates in the remarketing of used equipment. Global Financing's access to capital and its ability to manage increased exposures provide a competitive advantage for the company. The key competitive factors include price, IT product expertise, client service, contract flexibility, ease of doing business, global capabilities and residual values. In client and commercial financing, Global Financing competes with three types of companies in providing financial services to IT customers: other captive financing entities of companies such as Cisco and HP and non-captive financing entities of companies such as General Electric Company and banks or financial institutions. In remarketing, the company competes with local and regional brokers plus original manufacturers in the fragmented worldwide used IT equipment market.

Forward-looking and Cautionary Statements

        Certain statements contained in this Form 10-K may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 ("Reform Act"). Forward-looking statements are based on the company's current assumptions regarding future business and financial performance. These statements by their nature address matters that are uncertain to different degrees. The company may also make forward-looking statements in other reports filed with the Securities and Exchange Commission, in materials delivered to stockholders and in press releases. In addition, the company's representatives may from time to time make oral forward-looking statements. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Words such as "anticipates," "believes," "expects," "estimates," "intends," "plans," "projects," and similar expressions, may identify such forward-looking statements. Any forward-looking statement in this Form 10-K speaks only as of the date on which it is made. The company assumes no obligation to update or revise any forward-looking statements. In accordance with the Reform Act, set forth under Item 1A. "Risk Factors" on pages 14 to 19 are cautionary statements that accompany those forward-looking statements.

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Readers should carefully review such cautionary statements as they identify certain important factors that could cause actual results to differ materially from those in the forward-looking statements and from historical trends. Those cautionary statements are not exclusive and are in addition to other factors discussed elsewhere in this Form 10-K, in the company's filings with the Securities and Exchange Commission or in materials incorporated therein by reference.

        The following information is included in IBM's 2014 Annual Report to Stockholders and is incorporated herein by reference:

        Segment information and revenue by classes of similar products or services—pages 145 to 150.

        Financial information by geographic areas—page 149.

        Amount spent during each of the last three years on R&D activities—page 127.

        Financial information regarding environmental activities—page 118.

        The number of persons employed by the registrant—page 73.

        The management discussion overview—pages 22 to 25.

        Available information—page 155.

Also refer to Item 1A. entitled "Risk Factors" in Part I of this Form.

Executive Officers of the Registrant (at February 24, 2015):

 
  Age   Officer since  

Virginia M. Rometty, Chairman of the Board, President and Chief Executive Officer*

    57     2005  

Colleen F. Arnold, Senior Vice President, IBM Sales and Distribution

    57     2010  

Michelle H. Browdy, Senior Vice President, Legal and Regulatory Affairs, and General Counsel

    50     2015  

Erich Clementi, Senior Vice President, IBM Sales and Distribution

    56     2010  

Bruno V. Di Leo Allen, Senior Vice President, IBM Sales and Distribution

    57     2012  

Diane J. Gherson, Senior Vice President, Human Resources

    57     2013  

Jon C. Iwata, Senior Vice President, Marketing and Communications

    52     2002  

Martin Jetter, Senior Vice President, IBM Global Technology Services

    55     2014  

James J. Kavanaugh, Senior Vice President, Transformation and Operations

    48     2008  

John E. Kelly III, Senior Vice President, Solutions Portfolio and Research

    61     2000  

Kenneth M. Keverian, Senior Vice President, Corporate Strategy

    58     2014  

Arvind Krishna, Senior Vice President and Director, IBM Research

    52     2015  

Robert J. LeBlanc, Senior Vice President, IBM Cloud

    56     2010  

Steven A. Mills, Executive Vice President, Software and Systems

    63     2000  

Robert J. Picciano, Senior Vice President, IBM Analytics

    50     2014  

Michael D. Rhodin, Senior Vice President, IBM Watson

    54     2010  

Thomas W. Rosamilia, Senior Vice President, IBM Systems

    54     2013  

Martin J. Schroeter, Senior Vice President and Chief Financial Officer

    50     2014  

Stanley J. Sutula III, Vice President and Controller

    49     2015  

Bridget A. van Kralingen, Senior Vice President, IBM Global Business Services

    51     2012  

*
Member of the Board of Directors.

        All executive officers are elected by the Board of Directors and serve until the next election of officers in conjunction with the annual meeting of the stockholders as provided in the By-laws. Each

13


executive officer named above, with the exception of Kenneth M. Keverian, has been an executive of IBM or its subsidiaries during the past five years.

        Mr. Keverian was a Senior Partner at the Boston Consulting Group, a global management consulting firm, until joining IBM in 2014. He was with Boston Consulting Group for 26 years and he focused on serving technology companies in the computing and communications sectors.


Item 1A. Risk Factors:

         Downturn in Economic Environment and Client Spending Budgets could impact the Company's Business: If overall demand for IBM's products and solutions decreases, whether due to general economic conditions or a shift in client buying patterns, the company's revenue and profit could be impacted.

         The Company may not meet its Growth and Productivity Objectives under its Internal Business Transformation and Global Integration Initiatives: On an ongoing basis, IBM seeks to drive greater agility, productivity, flexibility and cost savings by transforming and globally integrating its own business processes and functions to remain competitive and to enable scaling of resources and offerings in both emerging and more established markets. These various initiatives may not yield their intended gains in speed, quality, productivity and enablement of rapid scaling, which may impact the company's competitiveness and its ability to meet its growth and productivity objectives.

         Failure of Innovation Initiatives could impact the Long-Term Success of the Company: IBM has been moving away from certain segments of the IT industry and into areas in which it can differentiate itself through innovation and by leveraging its investments in R&D. If IBM is unable to continue its cutting-edge innovation in a highly competitive environment or is unable to commercialize such innovations, expand and scale them with sufficient speed, the company could fail in its ongoing efforts to maintain and increase its market share and its profit margins. In addition, IBM has one of the strongest brand names in the world, and its brand and overall reputation could be negatively impacted by many factors, including if the company does not continue to be recognized for its industry-leading technology and solutions. If the company's brand image is tarnished by negative perceptions, its ability to attract and retain customers could be impacted.

         Risks from Investing in Growth Opportunities could impact the Company's Business: The company continues to invest significantly in its strategic imperatives to drive revenue growth and market share gains. Client adoption rates and viable economic models are less certain in the high-value, highly competitive, and rapidly-growing segments, and new delivery models may unfavorably impact demand and profitability for our other products or services. In addition, as the company expands to capture emerging growth opportunities, it needs to rapidly secure the appropriate mix of trained, skilled and experienced personnel, and develop ecosystems and collaborative partnerships. In emerging growth countries, the developing nature presents potential political, social, legal and economic risks from evolving governmental policy, inadequate infrastructure, creditworthiness of customers and business partners, labor disruption and corruption, which could impact the company's ability to meet its growth objectives and to deliver to its clients around the world.

         IBM's Intellectual Property Portfolio may not prevent Competitive Offerings, and IBM may not be able to Obtain Necessary Licenses: The company's patents and other intellectual property may not prevent competitors from independently developing products and services similar to or duplicative to the company's, nor can there be any assurance that the resources invested by the company to protect its intellectual property will be sufficient or that the company's intellectual property portfolio will adequately deter misappropriation or improper use of the company's technology. In addition, the company may be the target of aggressive and opportunistic enforcement of patents by third parties, including non-practicing entities. Also, there can be no assurances that IBM will be able to obtain from third parties the licenses it needs in the future. The company's ability to protect its intellectual property

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could also be impacted by changes to existing laws, legal principles and regulations governing intellectual property, including the ownership and protection of patents.

         Cybersecurity and Privacy Considerations could impact the Company's Business: The company's products, services, and systems may affect critical third party operations or involve the storage, processing and transmission of proprietary information and sensitive or confidential data, including valuable intellectual property and personal information of employees, customers and others. In the current environment there are numerous and evolving risks to cybersecurity and privacy, including criminal hackers, hacktivists, state-sponsored intrusions, industrial espionage, employee malfeasance, and human or technological error. Computer hackers and others routinely attempt to breach the security of technology products, services, and systems, and those of customers, third-parties contractors and vendors. Successful breaches could result in, for example, unauthorized access to, disclosure, modification, misuse, loss, or destruction of company, customer, or other third party data or systems, theft of sensitive or confidential data including personal information and intellectual property, system disruptions, and denial of service. In the event of such breaches, the company, its customers or other third parties could be exposed to potential liability, litigation, and regulatory action, as well as the loss of existing or potential customers, damage to brand and reputation, and other financial loss. In addition, the cost and operational consequences of responding to breaches and implementing remediation measures could be significant. The company experiences and responds to cybersecurity threats, although none has had a material adverse effect on the company to date. As these threats develop and grow, the company may also find it necessary to make significant further investments to protect data and infrastructure. As a global enterprise, the company could also be impacted by existing and proposed laws and regulations, as well as government policies and practices related to cybersecurity, privacy, data localization and data protection. Additionally, cyber attacks or other catastrophic events resulting in disruptions to or failures in power, information technology, communication systems or other critical infrastructure could result in interruptions or delays to company, customer, or other third party operations or services, financial loss, potential liability, and damage to brand and reputation.

         The Company's Financial Results for Particular Periods are Difficult to Predict: IBM's revenues are affected by such factors as the introduction of new products and services, the length of the sales cycles and the seasonality of technology purchases. Moreover, the company's strategic imperatives involve new products, new customers, and new markets, all of which contribute to the difficulty of predicting the company's financial results. The company's financial results may also be impacted by the structure of products and services contracts and the nature of its customers' businesses; for example, certain of the company's services contracts with commercial customers in regulated industries are subject to periodic review by regulators with respect to controls and processes. As a result of the above-mentioned factors, the company's financial results are difficult to predict. Historically, the company has had lower revenue in the first quarter than in the immediately preceding fourth quarter. In addition, the high volume of products typically ordered at the end of each quarter, especially at the end of the fourth quarter, may affect IBM's ability to successfully ship all orders before the end of the quarter.

         Due to the Company's Global Presence, its Business and Operations could be impacted by Local Legal, Economic, Political and Health Conditions: The company is a globally integrated entity, operating in over 175 countries worldwide and deriving more than sixty percent of its revenues from sales outside the United States. Changes in the laws or policies of the countries in which the company operates, or inadequate enforcement of laws or policies, could affect the company's business and the company's overall results of operations. The company's results of operations also could be affected by economic and political changes in those countries and by macroeconomic changes, including recessions, inflation and currency fluctuations between the U.S. dollar and non-U.S. currencies. Further, as the company expands its customer base and the scope of its offerings, both within the U.S. and globally, it may be impacted by additional regulatory or other risks. In addition, any widespread outbreak of an illness,

15


pandemic or other local or global health issue or uncertain political climates, international hostilities, natural disasters, or any terrorist activities, could adversely affect customer demand and the company's operations and its ability to source and deliver products and services to its customers.

         The Company could incur Substantial Costs for Environmental Matters: The company is subject to various federal, state, local and foreign laws and regulations concerning the discharge of materials into the environment or otherwise related to environmental protection, including the U.S. Superfund law. The company could incur substantial costs, including cleanup costs, fines and civil or criminal sanctions, as well as third-party claims for property damage or personal injury, if it were to violate or become liable under environmental laws and regulations. Compliance with environmental laws and regulations is not expected to have a material adverse effect on the company's financial position, results of operations and competitive position.

         Tax Matters could impact the Company's Results of Operations and Financial Condition: The company is subject to income taxes in both the United States and numerous foreign jurisdictions. IBM's provision for income taxes and cash tax liability in the future could be adversely affected by numerous factors including, but not limited to, income before taxes being lower than anticipated in countries with lower statutory tax rates and higher than anticipated in countries with higher statutory tax rates, changes in the valuation of deferred tax assets and liabilities, and changes in tax laws, regulations, accounting principles or interpretations thereof, which could adversely impact the company's results of operations and financial condition in future periods. In addition, IBM is subject to the continuous examination of its income tax returns by the United States Internal Revenue Service and other tax authorities around the world. The company regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of its provision for income taxes. There can be no assurance that the outcomes from these continuous examinations will not have an adverse effect on the company's provision for income taxes and cash tax liability.

         The Company's Results of Operations and Financial Condition could be negatively impacted by its U.S. and non-U.S. Pension Plans: Adverse equity market conditions and volatility in the credit markets may have an unfavorable impact on the value of the company's pension trust assets and its future estimated pension liabilities. As a result, the company's financial results in any period could be negatively impacted. In addition, in a period of an extended financial market downturn, the company could be required to provide incremental pension plan funding with resulting liquidity risk which could negatively impact the company's financial flexibility. Further, the company's results of operations and financial results could be negatively impacted by premiums for mandatory pension insolvency insurance coverage outside the United States. Premium increases can be significant due to the level of insolvencies of unrelated companies in the country at issue. Currently, Canada, Germany, Luxembourg and the United Kingdom require that these premiums be paid directly by the company and not out of plan assets, which could negatively impact the company's earnings. IBM's 2014 Annual Report to Stockholders includes information about potential impacts from pension funding and the use of certain assumptions regarding pension matters.

         Ineffective Internal Controls could impact the Company's Business and Operating Results: The company's internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If the company fails to maintain the adequacy of its internal controls, including any failure to implement required new or improved controls, or if the company experiences difficulties in their implementation, the company's business and operating results could be harmed and the company could fail to meet its financial reporting obligations.

16


         The Company's Use of Accounting Estimates involves Judgment and could impact the Company's Financial Results: The application of generally accepted accounting principles requires the company to make estimates and assumptions about certain items and future events that directly affect its reported financial condition. The company's most critical accounting estimates are described in the Management Discussion in IBM's 2014 Annual Report to Stockholders, under "Critical Accounting Estimates." In addition, as discussed in note M, "Contingencies and Commitments," in IBM's 2014 Annual Report to Stockholders, the company makes certain estimates including decisions related to legal proceedings and reserves. These estimates and assumptions involve the use of judgment. As a result, actual financial results may differ.

         The Company Depends on Skilled Personnel and could be impacted by the loss of Critical Skills: Much of the future success of the company depends on the continued service, availability and integrity of skilled personnel, including technical, marketing and staff resources. Skilled and experienced personnel in the areas where the company competes are in high demand, and competition for their talents is intense. Changing demographics and labor work force trends may result in a loss of knowledge and skills as experienced workers leave the company. In addition, as global opportunities and industry demand shifts, realignment, training and scaling of skilled resources may not be sufficiently rapid. Further, many of IBM's key personnel receive a total compensation package that includes equity awards. New regulations, volatility in the stock market and other factors could diminish the company's use, and the value, of the company's equity awards, putting the company at a competitive disadvantage or forcing the company to use more cash compensation.

         The Company's Business could be impacted by its Relationships with Critical Suppliers: IBM's business employs a wide variety of components, supplies, services and raw materials from a substantial number of suppliers around the world. Certain of the company's businesses rely on a single or a limited number of suppliers, and after GLOBALFOUNDRIES completes the acquisition of IBM's global commercial semiconductor business, it will become IBM's exclusive server processor technology provider for certain semiconductors. Changes in the business condition (financial or otherwise) of these suppliers could subject the company to losses and affect its ability to bring products to market. Further, the failure of the company's suppliers to deliver components, supplies, services and raw materials in sufficient quantities, in a timely manner, and in compliance with all applicable laws and regulations could adversely affect the company's business. In addition, any defective components, supplies or materials, or inadequate services received from suppliers could reduce the reliability of the company's products and services and harm the company's reputation.

         The Company could be impacted by its Business with Government Clients: The company's customers include numerous governmental entities within and outside the U.S., including the U.S. Federal Government and state and local entities. Some of the company's agreements with these customers may be subject to periodic funding approval. Funding reductions or delays could adversely impact public sector demand for our products and services. Also, some agreements may contain provisions allowing the customer to terminate without cause and providing for higher liability limits for certain losses. In addition, the company could be suspended or debarred as a governmental contractor and could incur civil and criminal fines and penalties, which could negatively impact the company's results of operations and financial results.

         The Company is exposed to Currency and Customer Financing Risks that could impact its Revenue and Business: The company derives a significant percentage of its revenues and costs from its affiliates operating in local currency environments, and those results are affected by changes in the relative values of non-U.S. currencies and the U.S. dollar. Further, inherent in the company's customer financing business are risks related to the concentration of credit, client creditworthiness, interest rate and currency fluctuations on the associated debt and liabilities, the determination of residual values and the financing of other than traditional IT assets. The company employs a number of strategies to manage these risks, including the use of derivative financial instruments, which involve the risk of

17


non-performance by the counterparty. In addition, there can be no assurance that the company's efforts to manage its currency and customer financing risks will be successful.

         The Company's Financial Performance could be impacted by Changes in Market Liquidity Conditions and by Customer Credit Risk on Receivables: The company's financial performance is exposed to a wide variety of industry sector dynamics worldwide. The company's earnings and cash flows, as well as its access to funding, could be negatively impacted by changes in market liquidity conditions. IBM's 2014 Annual Report to Stockholders includes information about the company's liquidity position. The company's client base includes many worldwide enterprises, from small and medium businesses to the world's largest organizations and governments, with a significant portion of the company's revenue coming from global clients across many sectors. Most of the company's sales are on an open credit basis, and the company performs ongoing credit evaluations of its clients' financial conditions. If the company becomes aware of information related to the creditworthiness of a major customer, or, if future actual default rates on receivables in general differ from those currently anticipated, the company may have to adjust its allowance for credit losses, which could affect the company's consolidated net income in the period the adjustments are made.

         The Company's Reliance on Third Party Distribution Channels could impact its Business: The company offers its products directly and through a variety of third party distributors and resellers. Changes in the business condition (financial or otherwise) of these distributors and resellers could subject the company to losses and affect its ability to bring its products to market. As the company moves into new areas, distributors and resellers may be unable to keep up with changes in technology and offerings, and the company may be unable to recruit and enable appropriate partners to achieve growth objectives. In addition, the failure of third party distributors and resellers to comply with all applicable laws and regulations may prevent the company from working with them and could subject the company to losses and affect its ability to bring products to market.

         Risks to the Company from Acquisitions, Alliances and Dispositions include Integration Challenges, Failure to Achieve Objectives, and the Assumption of Liabilities: The company has made and expects to continue to make acquisitions, alliances and dispositions. Acquisitions and alliances present significant challenges and risks relating to the integration of the business into the company, and there can be no assurances that the company will manage acquisitions and alliances successfully or that strategic acquisition opportunities will be available to the company on acceptable terms or at all. The related risks include the company failing to achieve strategic objectives and anticipated revenue improvements and cost savings, as well as the failure to retain key personnel of the acquired business and the assumption of liabilities related to litigation or other legal proceedings involving the acquired business. From time to time, the company disposes or attempts to dispose of assets that are no longer central to its strategic objectives. Any such disposition or attempted disposition is subject to risks, including risks related to the terms and timing of such disposition, risks related to obtaining necessary governmental or regulatory approvals and risks related to retained liabilities not subject to the company's control.

         The Company is Subject to Legal Proceedings Risks: As a company with a substantial employee population and with clients in more than 175 countries, IBM is involved, either as plaintiff or defendant, in a variety of ongoing claims, demands, suits, investigations, tax matters and proceedings that arise from time to time in the ordinary course of its business. The risks associated with such legal proceedings are described in more detail in note M, "Contingencies and Commitments," in IBM's 2014 Annual Report to Stockholders. The company believes it has adopted appropriate risk management and compliance programs. Legal and compliance risks, however, will continue to exist and additional legal proceedings and other contingencies, the outcome of which cannot be predicted with certainty, may arise from time to time.

         Risk Factors Related to IBM Securities: The company and its subsidiaries issue debt securities in the worldwide capital markets from time to time, with a variety of different maturities and in different

18


currencies. The value of the company's debt securities fluctuates based on many factors, including the methods employed for calculating principal and interest, the maturity of the securities, the aggregate principal amount of securities outstanding, the redemption features for the securities, the level, direction and volatility of interest rates, changes in exchange rates, exchange controls, governmental and stock exchange regulations and other factors over which the company has little or no control. The company's ability to pay interest and repay the principal for its debt securities is dependent upon its ability to manage its business operations, as well as the other risks described under this Item 1A. entitled "Risk Factors." There can be no assurance that the company will be able to manage any of these risks successfully.

        The company also issues its common stock from time to time in connection with various compensation plans, contributions to its pension plan and certain acquisitions. The market price of IBM common stock is subject to significant volatility, due to other factors described under this Item 1A. entitled "Risk Factors," as well as economic and geopolitical conditions generally, trading volumes, speculation by the press or investment community about the company's financial condition, and other factors, many of which are beyond the company's control. Since the market price of IBM's common stock fluctuates significantly, stockholders may not be able to sell the company's stock at attractive prices.

        In addition, changes by any rating agency to the company's outlook or credit ratings can negatively impact the value and liquidity of both the company's debt and equity securities. The company does not make a market in either its debt or equity securities and cannot provide any assurances with respect to the liquidity or value of such securities.


Item 1B. Unresolved Staff Comments:

        Not applicable.


Item 2. Properties:

        At December 31, 2014, IBM's manufacturing and development facilities in the United States had aggregate floor space of 17 million square feet, of which 12 million was owned and 5 million was leased. Of these amounts, 2 million square feet was vacant and 1 million square feet was being leased to non-IBM businesses. On October 20, 2014, IBM and GLOBALFOUNDRIES announced a definitive agreement in which GLOBALFOUNDRIES will acquire the company's Microelectronics business, including semiconductor manufacturing facilities in East Fishkill, New York and Essex Junction, Vermont. The transaction is expected to close in 2015. Similar facilities in 14 other countries totaled 7 million square feet, of which 3 million was owned and 4 million was leased.

        Although improved production techniques, productivity gains and infrastructure reduction actions have resulted in reduced manufacturing floor space, continuous maintenance and upgrading of facilities is essential to maintain technological leadership, improve productivity and meet customer demand.


Item 3. Legal Proceedings:

        Refer to note M, "Contingencies and Commitments," on pages 122 to 124 of IBM's 2014 Annual Report to Stockholders, which is incorporated herein by reference.


Item 4. Mine Safety Disclosures:

        Not applicable.

19



PART II

Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities:

        Refer to pages 151 and 155 of IBM's 2014 Annual Report to Stockholders, which are incorporated herein by reference solely as they relate to this item.

        IBM common stock is listed on the New York Stock Exchange and the Chicago Stock Exchange. There were 458,306 common stockholders of record at February 10, 2015.

        The following table provides information relating to the company's repurchase of common stock for the fourth quarter of 2014.

 
  Total Number
of Shares
Purchased
  Average
Price Paid
per Share
  Total Number
of Shares
Purchased
as Part of Publicly
Announced
Program
  Approximate
Dollar Value
of Shares that
May Yet Be
Purchased
Under
the Program(1)
 

October 1, 2014—
October 31, 2014

    650,100   $ 177.32     650,100   $ 6,264,088,758  

November 1, 2014—
November 30, 2014

      $       $ 6,264,088,758  

December 1, 2014—
December 31, 2014

      $       $ 6,264,088,758  
                     

Total

    650,100   $ 177.32     650,100        
                     

(1)
On October 29, 2013, the Board of Directors authorized $15.0 billion in funds for use in the company's common stock repurchase program. On October 28, 2014 the Board of Directors authorized an additional $5.0 billion in funds for use in such program. In each case, the company stated that it would repurchase shares on the open market or in private transactions depending on market conditions. The common stock repurchase program does not have an expiration date. This table does not include shares tendered to satisfy the exercise price in connection with cashless exercises of employee stock options or shares tendered to satisfy tax withholding obligations in connection with employee equity awards.


Item 6. Selected Financial Data:

        Refer to pages 151 and 152 of IBM's 2014 Annual Report to Stockholders, which are incorporated herein by reference.


Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations:

        Refer to pages 22 through 77 of IBM's 2014 Annual Report to Stockholders, which are incorporated herein by reference.


Item 7A. Quantitative and Qualitative Disclosures About Market Risk:

        Refer to the section titled "Market Risk" on page 72 of IBM's 2014 Annual Report to Stockholders, which is incorporated herein by reference.


Item 8. Financial Statements and Supplementary Data:

        Refer to pages 80 through 150 of IBM's 2014 Annual Report to Stockholders, which are incorporated herein by reference. Also refer to the Financial Statement Schedule on page S-1 of this Form 10-K.

20



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure:

        Not applicable.


Item 9A. Controls and Procedures:

        The company's management evaluated, with the participation of the Chief Executive Officer and Chief Financial Officer, the effectiveness of the company's disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by this report.

        Refer to "Report of Management" and "Report of Independent Registered Public Accounting Firm" on pages 78 and 79 of IBM's 2014 Annual Report to Stockholders, which are incorporated herein by reference. There has been no change in the company's internal control over financial reporting that occurred during the fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting.


Item 9B. Other Information:

        Effective January 1, 2015, the company amended Article III, Section 2 of its By-laws to increase the number of directors to fourteen. Article II, Section 7 of IBM's By-laws was amended effective February 24, 2015 to clarify the deadline for stockholder submissions before the Annual Meeting of Stockholders. The full text of IBM's By-laws, as amended, is included as Exhibit 3 to this report.

21



PART III

Item 10. Directors, Executive Officers and Corporate Governance:

        Refer to the information under the captions "Election of Directors for a Term of One Year," "General Information—Committees of the Board," "General Information—Audit Committee" and "2014 Director Compensation Narrative—Section 16(a) Beneficial Ownership Reporting Compliance" in IBM's definitive Proxy Statement to be filed with the Securities and Exchange Commission and delivered to stockholders in connection with the Annual Meeting of Stockholders to be held April 28, 2015, all of which information is incorporated herein by reference. Also refer to Item 1 of this Form 10-K under the caption "Executive Officers of the Registrant (at February 24, 2015)" on page 13 for additional information on the company's executive officers.


Item 11. Executive Compensation:

        Refer to the information under the captions "2014 Director Compensation Narrative," "2014 Director Compensation Narrative—2014 Director Compensation Table," "2014 Compensation Discussion and Analysis," "2014 Summary Compensation Table Narrative," "2014 Summary Compensation Table," "2014 Grants of Plan-Based Awards Table," "2014 Outstanding Equity Awards at Fiscal Year-End Narrative," "2014 Outstanding Equity Awards at Fiscal Year-End Table," "2014 Option Exercises and Stock Vested Table," "2014 Retention Plan Narrative," "2014 Retention Plan Table," "2014 Pension Benefits Narrative," "2014 Pension Benefits Table," "2014 Nonqualified Deferred Compensation Narrative," "2014 Nonqualified Deferred Compensation Table," "2014 Potential Payments Upon Termination Narrative," "2014 Potential Payments Upon Termination Table," "General Information—Compensation Committee Interlocks and Insider Participation" and "Executive Compensation—2014 Report of the Executive Compensation and Management Resources Committee of the Board of Directors" in IBM's definitive Proxy Statement to be filed with the Securities and Exchange Commission and delivered to stockholders in connection with the Annual Meeting of Stockholders to be held April 28, 2015, all of which information is incorporated herein by reference.


Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters:

        Refer to the information under the caption "Ownership of Securities—Security Ownership of Certain Beneficial Owners" and "Ownership of Securities—Common Stock and Stock-based Holdings of Directors and Executive Officers" in IBM's definitive Proxy Statement to be filed with the Securities and Exchange Commission and delivered to stockholders in connection with the Annual Meeting of Stockholders to be held April 28, 2015, all of which information is incorporated herein by reference.

22


EQUITY COMPENSATION PLAN INFORMATION

Plan Category
  Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights(1)
(a)
  Weighted-average
exercise price of
outstanding options,
warrants and rights(1)
(b)
  Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column(a))
(c)
 

Equity compensation plans approved by security holders

                   

Options

    437,563   $ 92.65      

RSUs

    7,160,978     N/A      

PSUs

    4,343,040 (2)   N/A      
               

Subtotal

    11,941,581   $ 92.65     99,995,330  

Equity compensation plans not approved by security holders

                   

Options

    1,313,386   $ 98.01      

RSUs

    573,299     N/A      

PSUs

    161,497 (2)   N/A      

DCEAP shares

    153,688     N/A      
               

Subtotal

    2,201,870   $ 98.01     15,513,213  
               

Total

    14,143,451   $ 96.67     115,508,543  

N/A is not applicable

RSUs = Restricted Stock Units, including Retention Restricted Stock Units

PSUs = Performance Share Units

DCEAP Shares = Promised Fee Shares under the DCEAP (see plan description below)

(1)
In connection with 34 acquisition transactions, 519,138 additional share based awards, consisting of stock options and RSUs, were outstanding at December 31, 2014 as a result of the Company's assumption of awards granted by the acquired entities. The weighted-average exercise price of these awards was $55.51. The Company has not made, and will not make, any further grants or awards of equity securities under the plans of these acquired companies.

(2)
The numbers included for PSUs in column (a) above reflect the maximum number payout. Assuming target number payout, the number of securities to be issued upon exercise of PSUs for equity compensation plans approved by security holders is 2,643,331 and for equity compensation plans not approved by security holders is 84,328. For additional information about PSUs, including payout calculations, refer to the information under "2014 Summary Compensation Table Narrative," in IBM's definitive Proxy Statement to be filed with the Securities and Exchange Commission and delivered to stockholders in connection with the Annual Meeting of Stockholders to be held April 28, 2015.

        The material features of each equity compensation plan under which equity securities are authorized for issuance that was adopted without stockholder approval are described below:

2001 Long-Term Performance PIan

        The 2001 Long-Term Performance Plan (the "2001 Plan") has been used to fund awards for employees other than senior executives of the Company. Awards for senior executives of the Company have been and will continue to be funded from the stockholder-approved 1999 Long-Term Performance Plan (the "1999 Plan"); the 1999 Plan is also used to fund awards for employees other than senior

23


executives, Otherwise, the provisions of the 2001 Plan are identical to the 1999 Plan, including the type of awards that may be granted under the plan (stock options, restricted stock and unit awards and long-term performance incentive awards)

        The 2001 Plan is administered by the Executive Compensation and Management Resources Committee of the Board of Directors (the "Committee"), and that Committee may delegate to officers of the company certain of its duties, powers and authority. Payment of awards may be made in the form of cash, stock or combinations thereof and may be deferred with Committee approval. Awards are not transferable or assignable except (i) by law, will or the laws of descent and distribution,(ii) as a result of the disability of the recipient, or (iii) with the approval of the Committee.

        If the employment of a participant terminates, other than as a result of the death or disability of a participant, all unexercised, deferred and unpaid awards shall be canceled immediately, unless the award agreement provides otherwise. In the event of the death of a participant or in the event a participant is deemed by the company to be disabled and eligible for benefits under the terms of the IBM Long-Term Disability Plan (or any successor plan or similar plan of another employer), the participant's estate, beneficiaries or representative, as the case may be, shall have the rights and duties of the participant under the applicable award agreement. In addition, unless the award agreement specifies otherwise, the Committee may cancel, rescind, suspend, withhold or otherwise limit or restrict any unexpired, unpaid, or deferred awards at any time if the participant is not in compliance with all applicable provisions of the awards agreement and the 2001 plan. In addition, awards may be cancelled if the participant engages in any conduct or act determined to be injurious, detrimental or prejudicial to any interest of the company.

PWCC Acquisition Long-Term Performance Plan

        The IBM PWCC Acquisition Long-Term Performance Plan (the "PWCC Plan") was adopted by the Board of Directors in connection with the company's acquisition of PricewaterhouseCoopers Consulting ("PwCC") from PricewaterhouseCoopers LLP, as announced on October 1, 2002. The PWCC Plan has been and will continue to be used solely to fund awards for employees of PwCC who have become employed by the company as a result of the acquisition. Awards for senior executives of the company will not be funded from the PWCC Plan. The terms and conditions of the PWCC Plan are substantively identical to the terms and conditions of the 2001 Plan, described above.

IBM Deferred Compensation and Equity Award Plan

        The IBM Deferred Compensation and Equity Award Plan (the "DCEAP") was adopted in 1993 and amended and restated effective January 1, 2014. Under the Amended and Restated DCEAP, non-management directors receive Promised Fee Shares in connection with deferred annual retainer payments. Each Promised Fee Share is equal in value to one share of the company's common stock. Upon a director's retirement or other completion of service as a director, amounts deferred into Promised Fee Shares are payable in either cash and/or shares of the company's stock either as lump sum or installments pursuant to the director's distribution election. For additional information about the DCEAP, see "2014 Director Compensation Narrative" in IBM's definitive Proxy Statement to be filed with the Securities and Exchange Commission and delivered to stockholders in connection with the Annual Meeting of Stockholders to be held April 28, 2015.


Item 13. Certain Relationships and Related Transactions, and Director Independence:

        Refer to the information under the captions "General Information—IBM Board of Directors" and "General Information—Certain Transactions and Relationships" in IBM's definitive Proxy Statement to be filed with the Securities and Exchange Commission and delivered to stockholders in connection with the Annual Meeting of Stockholders to be held April 28, 2015, which information is incorporated herein by reference.

24



Item 14. Principal Accounting Fees and Services:

        Refer to the information under the captions "Report of the Audit Committee of the Board of Directors" and "Audit and Non-Audit Fees" in IBM's definitive Proxy Statement to be filed with the Securities and Exchange Commission and delivered to stockholders in connection with the Annual Meeting of Stockholders to be held April 28, 2015, all of which information is incorporated herein by reference.

25



PART IV

Item 15. Exhibits, Financial Statement Schedules:

    (a)
    The following documents are filed as part of this report:

    1.
    Financial statements from IBM's 2014 Annual Report to Stockholders, which are incorporated herein by reference:

        Report of Independent Registered Public Accounting Firm (page 79).

        Consolidated Statement of Earnings for the years ended December 31, 2014, 2013 and 2012 (page 80).

        Consolidated Statement of Comprehensive Income for the years ended December 31, 2014, 2013 and 2012 (page 81).

        Consolidated Statement of Financial Position at December 31, 2014 and 2013 (page 82).

        Consolidated Statement of Cash Flows for the years ended December 31, 2014, 2013 and 2012 (page 83).

        Consolidated Statement of Changes in Equity at December 31, 2014, 2013 and 2012 (pages 84 and 85).

        Notes to Consolidated Financial Statements (pages 86 through 150).

      2.
      Financial statement schedule required to be filed by Item 8 of this Form:

Page
  Schedule
Number
   
 

31

       

Report of Independent Registered Public Accounting Firm on Financial Statement Schedule.

 

S-1

    II  

Valuation and Qualifying Accounts and Reserves.

        All other schedules are omitted as the required matter is not present, the amounts are not significant or the information is shown in the Consolidated Financial Statements or the notes thereto.

      3.
      Exhibits:

Reference
Number per
Item 601 of
Regulation S-K
  Description of Exhibits   Exhibit Number
in this
Form 10-K
 
  (2)   Plan of acquisition, reorganization, arrangement, liquidation or succession.      Not applicable  

 

(3)

 

Certificate of Incorporation and By-laws. 

 

 

 

 

 

 

 

The Certificate of Incorporation of IBM is Exhibit 3.2 to Form 8-K filed April 27, 2007, and is hereby incorporated by reference. 

 

 

 

 

 

 

 

The By-laws of IBM, as amended through February 24, 2015. 

 

 

3

 

 

(4)

 

Instruments defining the rights of security holders. 

 

 

 

 

 

 

 

The instruments defining the rights of the holders of the 8.375% Debentures due 2019 are Exhibits 4(a)(b)(c) and (d), respectively, to Registration Statement No. 33-31732 on Form S-3, filed on October 24, 1989, and are hereby incorporated by reference. 

 

 

 

 

26


Reference
Number per
Item 601 of
Regulation S-K
  Description of Exhibits   Exhibit Number
in this
Form 10-K
 
      The instruments defining the rights of the holders of the 7.00% Debentures due 2025 and the 7.00% Debentures due 2045 are Exhibits 2 and 3, respectively, to Form 8-K, filed on October 30, 1995, and are hereby incorporated by reference.         

 

 

 

The instrument defining the rights of the holders of the 7.125% Debentures due 2096 is Exhibit 2 to Form 8-K/A, filed on December 6, 1996, and is hereby incorporated by reference. 

 

 

 

 

 

 

 

The instrument defining the rights of the holders of the 6.22% Debentures due 2027 is Exhibit 3 to Form 8-K, filed on August 1, 1997, and is hereby incorporated by reference. 

 

 

 

 

 

 

 

The instrument defining the rights of the holders of the 6.50% Debentures due 2028 is Exhibit 2 to Form 8-K, filed on January 8, 1998, and is hereby incorporated by reference. 

 

 

 

 

 

 

 

The instrument defining the rights of the holders of the 2.000% Notes due 2016 is Exhibit 2.1 to Form 8-K, filed December 8, 2010, and is hereby incorporated by reference. 

 

 

 

 

 

 

 

The instrument defining the rights of the holders of the 1.950% Notes due 2016 is Exhibit 2.1 to Form 8-K, filed July 21, 2011, and is hereby incorporated by reference. 

 

 

 

 

 

 

 

The instruments defining the rights of the holders of the 2.900% Notes due 2021 is Exhibit 3.1 to Form 8-K, filed October 31, 2011, and is hereby incorporated by reference. 

 

 

 

 

 

 

 

The instruments defining the rights of the holders of the 0.550% Notes due 2015 and the 1.250% Notes due 2017 are Exhibits 2.1 and 3.1 to Form 8-K, filed February 3, 2012, and are hereby incorporated by reference. 

 

 

 

 

 

 

 

The instrument defining the rights of the holders of the 2.20% Notes due 2017 is Exhibit 2.1 to Form 8-K, filed February 9, 2012, and is hereby incorporated by reference. 

 

 

 

 

 

 

 

The instruments defining the rights of the holders of the 0.750% Notes due 2015 and the 1.875% Notes due 2019 are Exhibits 2.1 and 3.1 to Form 8-K, filed May 10, 2012, and are hereby incorporated by reference. 

 

 

 

 

 

 

 

The instruments defining the rights of the holders of the 1.875% Notes due 2022 is Exhibit 2.1 to Form 8-K, filed July 27, 2012, and is hereby incorporated by reference. 

 

 

 

 

 

 

 

The instruments defining the rights of the holders of the 1.375% Notes due 2019 is Exhibit 2.1 to Form 8-K, filed November 16, 2012, and is hereby incorporated by reference. 

 

 

 

 

27


Reference
Number per
Item 601 of
Regulation S-K
  Description of Exhibits   Exhibit Number
in this
Form 10-K
 
      The instruments defining the rights of the holders of the 1.250% Notes due 2018 and Floating Rate Notes due 2015 are Exhibits 2.1 and 3.1 to Form 8-K, filed February 7, 2013, and are hereby incorporated by reference.         

 

 

 

The instruments defining the rights of the holders of the 0.45% Notes due 2016 and 1.625% Notes due 2020 are Exhibits 2.1 and 3.1 to Form 8-K, filed May 6, 2013, and are hereby incorporated by reference. 

 

 

 

 

 

 

 

The instruments defining the rights of the holders of the 3.375% Notes due 2023 and Floating Rate Notes due 2015 are Exhibits 2.1 and 3.1 to Form 8-K, filed July 31, 2013, and are hereby incorporated by reference. 

 

 

 

 

 

 

 

The instruments defining the rights of the holders of the 1.875% Notes due 2020 and 2.875% Notes due 2025 are Exhibits 2.1 and 3.1 to Form 8-K, filed November 6, 2013, and are hereby incorporated by reference. 

 

 

 

 

 

 

 

The instruments defining the rights of the holders of the 2.750% Notes due 2020 is Exhibit 2 to Form 8-K, filed November 20, 2013, and is hereby incorporated by reference. 

 

 

 

 

 

 

 

The instruments defining the rights of the holders of the Floating Rate Notes due 2016, 1.950% Notes due 2019, Floating Rate Notes due 2019 and 3.625% due 2024 are Exhibits 2, 3, 4 and 5 to Form 8-K, filed February 11, 2014, and are hereby incorporated by reference. 

 

 

 

 

 

 

 

The instruments defining the rights of the holders of the Floating Rate Notes due 2021 is Exhibit 2 to Form 8-K, filed November 5, 2014, and is hereby incorporated by reference. 

 

 

 

 

 

 

 

The instruments defining the rights of the holders of the 1.25% Notes due 2023 is Exhibit 2 to Form 8-K, filed November 25, 2014, and is hereby incorporated by reference. 

 

 

 

 

 

 

 

The instruments defining the rights of the holders of the 1.125% Notes due 2018 and Floating Rate Notes due 2018 are Exhibits 2 and 3 to Form 8-K, filed February 5, 2015, and are hereby incorporated by reference. 

 

 

 

 

 

(9)

 

Voting trust agreement

 

 

Not applicable

 

 

(10)

 

Material contracts

 

 

 

 

 

 

 

The IBM 2001 Long-Term Performance Plan, a compensatory plan, contained in Registration Statement No. 333-87708 on Form S-8, as such amended plan was filed as Exhibit 10.1 to Form 10-Q for the quarter ended September 30, 2007, is hereby incorporated by reference.*

 

 

 

 

28


Reference
Number per
Item 601 of
Regulation S-K
  Description of Exhibits   Exhibit Number
in this
Form 10-K
 
      The IBM PWCC Acquisition Long-Term Performance Plan, a compensatory plan, contained in Registration Statement No. 333-102872 on Form S-8, as such amended plan was filed as Exhibit 10.2 to Form 10-Q for the quarter ended September 30, 2007, is hereby incorporated by reference.*        

 

 

 

The IBM 1999 Long-Term Performance Plan, a compensatory plan, contained in Registration Statement No. 333-30424 on Form S-8, as such amended plan was filed as Exhibit 10.3 to Form 10-Q for the quarter ended September 30, 2007, is hereby incorporated by reference.*

 

 

 

 

 

 

 

The IBM 1997 Long-Term Performance Plan, a compensatory plan, contained in Registration Statement No. 333-31305 on Form S-8, as such amended plan was filed as Exhibit 10.4 to Form 10-Q for the quarter ended September 30, 2007, is hereby incorporated by reference.*

 

 

 

 

 

 

 

Forms of LTPP equity award agreements for (i) stock options, restricted stock, restricted stock units, cash-settled restricted stock units, SARS, (ii) performance share units and (iii) retention restricted stock unit awards. Such equity award agreement forms and the related terms and conditions document, effective June 9, 2014, were filed as Exhibit 10.2 to Form 10-Q for the quarter ended March 31, 2014, are hereby incorporated by reference.*

 

 

 

 

 

 

 

Board of Directors compensatory plans, as described under the caption "General Information—2014 Director Compensation" in IBM's definitive Proxy Statement to be filed with the Securities and Exchange Commission and delivered to stockholders in connection with the Annual Meeting of Stockholders to be held April 28, 2015, are hereby incorporated by reference.*

 

 

 

 

 

 

 

The IBM Non-Employee Directors Stock Option Plan, contained in Registration Statement 33-60227 on Form S-8, is hereby incorporated by reference.*

 

 

 

 

 

 

 

The IBM Board of Directors Deferred Compensation and Equity Award Plan, a compensatory plan, as amended and restated effective January 1, 2014 which was filed as Exhibit 10.1 to Form 10-K for the year ended December 31, 2013, and is hereby incorporated by reference.*

 

 

 

 

 

 

 

The IBM Supplemental Executive Retention Plan, a compensatory plan, as amended and restated through December 31, 2008, was filed as Exhibit 10.2 to Form 10-K for the year ended December 31, 2008, is hereby incorporated by reference.*

 

 

 

 

 

 

 

Amendment No. 1 to the IBM Supplemental Executive Retention Plan, a compensatory plan, effective December 9, 2014.*

 

 

10.1

 

29


Reference
Number per
Item 601 of
Regulation S-K
  Description of Exhibits   Exhibit Number
in this
Form 10-K
 
      The IBM Excess 401(k) Plus Plan, a compensatory plan (formerly the IBM Executive Deferred Compensation Plan), as amended and restated through January 1, 2010, which was filed as Exhibit 10.1 to the Form 10-K for the year ended December 31, 2009 contained in Registration which was filed as Exhibit 10.2 to the Form 10-K for the year ended December 31, 2013, and is hereby incorporated by reference.* Statement No. 333-171968, is hereby incorporated by reference.*        

 

 

 

Amendment No. 1 to the IBM Excess 401(k) Plus Plan, a compensatory plan, effective January 1, 2013 which was filed as Exhibit 10.1 to the Form 10-K for the year ended December 31, 2012, and is hereby incorporated by reference.*

 

 

 

 

 

 

 

Amendment No. 2 to the IBM Excess 401(k) Plus Plan, a compensatory plan, effective January 1, 2013 which was filed as Exhibit 10.2 to the Form 10-K for the year ended December 31, 2012, and is hereby incorporated by reference.*

 

 

 

 

 

 

 

Amendment No. 3 to the IBM Excess 401(k) Plus Plan, a compensatory plan, effective January 1, 2013 which was filed as Exhibit 10.2 to the Form 10-K for the year ended December 31, 2013, and is hereby incorporated by reference.*

 

 

 

 

 

 

 

Amendment No. 4 to the IBM Excess 401(k) Plus Plan, a compensatory plan, dated as of February 25, 2014, which was filed as Exhibit 10.1 to the Form 10-Q for the quarter ended March 31, 2014, and is hereby incorporated by reference.*

 

 

 

 

 

 

 

Amendment No. 5 to the IBM Excess 401(k) Plus Plan, a compensatory plan, dated as of December 9, 2014.*

 

 

10.2

 

 

 

 

The IBM 2003 Employees Stock Purchase Plan, contained in Registration Statement 333-104806 on Form S-8, as amended through April 1, 2005, which was filed as Exhibit 10.3 to Form 10-Q for the quarter ended March 31, 2005, is hereby incorporated by reference.*

 

 

 

 

 

 

 

Form of Noncompetition Agreement, filed as Exhibit 10.2 to Form 10-Q for the quarter ended March 31, 2009, is hereby incorporated by reference.*

 

 

 

 

 

 

 

Form of Noncompetition Agreement, filed as Exhibit 10.1 to Form 10-Q for the quarter ended March 31, 2012, is hereby incorporated by reference.*

 

 

 

 

 

 

 

Letter dated March 17, 2014, signed by Kenneth M. Keverian and IBM, effective April 1, 2014.*

 

 

10.3

 

30


Reference
Number per
Item 601 of
Regulation S-K
  Description of Exhibits   Exhibit Number
in this
Form 10-K
 
      The $10,000,000 5-Year Credit Agreement dated as of November 10, 2011, among International Business Machines Corporation, the Subsidiary Borrowers parties thereto, the Lenders parties thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and the Syndication and Documentation Agents named therein, which was filed as Exhibit 10.1 to Form 8-K dated November 14, 2011, the term of which was extended through November 10, 2019, is hereby incorporated by reference.         

 

 

 

First Amendment, dated as of October 16, 2014, to the 5-Year Credit Agreement, among International Business Machines Corporation, JPMorgan Chase Bank, N.A., as Administrative Agent, the Subsidiary Borrowers parties thereto, the Lenders parties thereto and the Syndication Agents and Documentation Agents therein. 

 

 

10.4

 

 

(11)

 

Statement re computation of per share earnings

 

 

 

 

 

 

 

The statement re computation of per share earnings is note P, "Earnings Per Share of Common Stock," on page 127 of IBM's 2014 Annual Report to Stockholders, and is hereby incorporated by reference. 

 

 

 

 

 

(12)

 

Statement re computation of ratios

 

 

12

 

 

(13)

 

Annual report to security holders**

 

 

13

 

 

(18)

 

Letter re: change in accounting principles

 

 

Not applicable

 

 

(19)

 

Previously unfiled documents

 

 

Not applicable

 

 

(21)

 

Subsidiaries of the registrant

 

 

21

 

 

(22)

 

Published report regarding matters submitted to vote of security holders

 

 

Not applicable

 

 

(23.1)

 

Consent of experts

 

 

23.1

 

 

(24.1)

 

Powers of attorney

 

 

24.1

 

 

(24.2)

 

Resolution of the IBM Board of Directors authorizing execution of this report by Powers of Attorney

 

 

24.2

 

 

(28)

 

Information from reports furnished to state insurance regulatory authorities

 

 

Not applicable

 

 

(31.1)

 

Certification by CEO pursuant to Rule 13A-14(a) or 15D-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

31.1

 

 

(31.2)

 

Certification by CFO pursuant to Rule 13A-14(a) or 15D-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

31.2

 

31


Reference
Number per
Item 601 of
Regulation S-K
  Description of Exhibits   Exhibit Number
in this
Form 10-K
 
  (32.1)   Certification by CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002     32.1  

 

(32.2)

 

Certification by CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

32.2

 

 

101.INS

 

XBRL Instance Document

 

 

 

 

 

101.SCH

 

XBRL Taxonomy Extension Schema Document

 

 

 

 

 

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

 

 

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

 

 

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

 

 

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

101

 

*
Management contract or compensatory plan or arrangement.

**
The Performance Graph, set forth on page 153 of IBM's 2014 Annual Report to Stockholders, is deemed to be furnished but not filed.

32



SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

    INTERNATIONAL BUSINESS MACHINES CORPORATION
(Registrant)

 

 

By:

 

/s/ VIRGINIA M. ROMETTY

Virginia M. Rometty
Chairman of the Board,
President and Chief Executive Officer

 

 

 

 

Date: February 24, 2015

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature
 
Title
 
Date

 

 

 

 

 

/s/ VIRGINIA M. ROMETTY


Virginia M. Rometty
 

    Chairman of the Board,
President and Chief Executive
Officer

  February 24, 2015


/s/ MARTIN J. SCHROETER


Martin J. Schroeter

 


Senior Vice President and Chief
Financial Officer


 


February 24, 2015


/s/ STANLEY J. SUTULA III


Stanley J. Sutula III

 


Vice President and Controller
(Chief Accounting Officer)


 


February 24, 2015

 


Alain J. P. Belda

 

Director

 

 

 

 

William R. Brody

 

Director

 

 

 

 

Kenneth I. Chenault

 

Director

 

By:

 

/s/ CHRISTINA M. MONTGOMERY

Christina M. Montgomery
Michael L. Eskew   Director       Attorney-in-fact
February 24, 2015
David N. Farr   Director        

Alex Gorsky

 

Director

 

 

 

 

Shirley Ann Jackson

 

Director

 

 

 

 

Andrew N. Liveris

 

Director

 

 

 

 

W. James McNerney, Jr.

 

Director

 

 

 

 

James W. Owens

 

Director

 

 

 

 

Joan E. Spero

 

Director

 

 

 

 

Sidney Taurel

 

Director

 

 

 

 

Peter R. Voser

 

Director

 

 

 

 

33



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON FINANCIAL STATEMENT SCHEDULE

To the Stockholders and Board of Directors of
International Business Machines Corporation:

        Our audits of the consolidated financial statements and of the effectiveness of internal control over financial reporting referred to in our report dated February 24, 2015 appearing in the 2014 Annual Report to Shareholders of International Business Machines Corporation (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 15(a)(2) of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
New York, New York
February 24, 2015

34



SCHEDULE II

INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Years Ended December 31:
(Dollars in Millions)

Description
  Balance at
Beginning
of Period
  Additions*   Writeoffs   Other**   Balance at
End of
Period
 

Allowance For Doubtful Accounts

                               

2014

                               

—Current

  $ 636   $ 276   $ (48 ) $ (35 ) $ 829  
                       
                       

—Noncurrent

  $ 80   $ 57   $ (4 ) $ (7 ) $ 126  
                       
                       

2013

                               

—Current

  $ 560   $ 127   $ (60 ) $ 9   $ 636  
                       
                       

—Noncurrent

  $ 66   $ 27   $ 0   $ (12 ) $ 80  
                       
                       

2012

                               

—Current

  $ 578   $ 41   $ (45 ) $ (15 ) $ 560  
                       
                       

—Noncurrent

  $ 38   $ 10   $ 0   $ 17   $ 66  
                       
                       

Allowance For Inventory Losses

                               

2014

  $ 623   $ 211   $ (232 ) $ (38 ) $ 564  
                       
                       

2013

  $ 652   $ 201   $ (214 ) $ (16 ) $ 623  
                       
                       

2012

  $ 625   $ 294   $ (240 ) $ (28 ) $ 652  
                       
                       

Revenue Based Provisions

                               

2014

  $ 827   $ 2,519   $ (2,693 ) $ (37 ) $ 616  
                       
                       

2013

  $ 777   $ 3,061   $ (3,004 ) $ (7 ) $ 827  
                       
                       

2012

  $ 861   $ 3,228   $ (3,345 ) $ 33   $ 777  
                       
                       

*
Additions for Allowance for Doubtful Accounts and Allowance for Inventory Losses are charged to expense and cost accounts, respectively, while Revenue Based Provisions are charged to revenue accounts.

**
Primarily comprises currency translation adjustments.

S-1




QuickLinks

PART I
PART II
PART III
PART IV
SIGNATURES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON FINANCIAL STATEMENT SCHEDULE
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES VALUATION AND QUALIFYING ACCOUNTS AND RESERVES For the Years Ended December 31: (Dollars in Millions)

Exhibit 3

 

BY-LAWS

 

of

 

INTERNATIONAL BUSINESS MACHINES CORPORATION

 

Adopted April 29,1958

 

As Amended Through

 

February 24, 2015

 



 

TABLE OF CONTENTS

 

ARTICLE I — Definitions

1

 

 

ARTICLE II — MEETINGS OF STOCKHOLDERS

 

 

 

 

SECTION  1.

Place of Meetings

1

 

SECTION  2.

Annual Meetings

1

 

SECTION  3.

Special Meetings

2

 

SECTION  4.

Notice of Meetings

2

 

SECTION  5.

Quorum

2

 

SECTION  6.

Organization

3

 

SECTION  7.

Items of Business

3

 

SECTION  8.

Voting

5

 

SECTION  9.

List of Stockholders

5

 

SECTION 10.

Inspectors of Election

5

 

 

 

 

ARTICLE III — BOARD OF DIRECTORS

 

 

 

 

SECTION  1.

General Powers

6

 

SECTION  2.

Number; Qualifications; Election; Term of Office

6

 

SECTION  3.

Place of Meetings

6

 

SECTION  4.

First Meeting

6

 

SECTION  5.

Regular Meetings

6

 

SECTION  6.

Special Meetings

7

 

SECTION  7.

Notice of Meetings

7

 

SECTION  8.

Quorum and Manner of Acting

7

 

SECTION  9.

Organization

7

 

SECTION 10.

Resignations

7

 

SECTION 11.

Vacancies

8

 

SECTION 12.

Retirement of Directors

8

 

 

 

 

ARTICLE IV — EXECUTIVE AND OTHER COMMITTEES

 

 

 

 

SECTION  1.

Executive Committee

8

 

SECTION  2.

Powers of the Executive Committee

8

 

SECTION  3.

Meetings of the Executive Committee

9

 

SECTION  4.

Quorum and Manner of Acting of the Executive Committee

9

 

SECTION  5.

Other Committees

9

 

SECTION  6.

Changes in Committees; Resignations; Removals; Vacancies

10

 

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ARTICLE V — OFFICERS

 

 

 

 

SECTION  1.

Number and Qualifications

10

 

SECTION  2.

Resignations

10

 

SECTION  3.

Removal

11

 

SECTION  4.

Vacancies

11

 

SECTION  5.

Chairman of the Board

11

 

SECTION  6.

Vice Chairman of the Board

11

 

SECTION  7.

President

11

 

SECTION  8.

Designated Officers

12

 

SECTION  9.

Executive Vice Presidents, Senior Vice Presidents and Vice Presidents

12

 

SECTION 10.

Treasurer

12

 

SECTION 11.

Secretary

13

 

SECTION 12.

Controller

13

 

SECTION 13.

Compensation

14

 

 

 

 

ARTICLE VI — CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.

 

 

 

 

SECTION  1.

Execution of Contracts

14

 

SECTION  2.

Loans

14

 

SECTION  3.

Checks, Drafts, etc

14

 

SECTION  4.

Deposits

14

 

SECTION  5.

General and Special Bank Accounts

15

 

SECTION  6.

Indemnification

15

 

 

 

 

ARTICLE VII — SHARES

 

 

 

 

SECTION  1.

Stock Certificates

16

 

SECTION  2.

Books of Account and Record of Stockholders

16

 

SECTION  3.

Transfers of Stock

16

 

SECTION  4.

Regulations

16

 

SECTION  5.

Fixing of Record Date

17

 

SECTION  6.

Lost, Destroyed or Mutilated Certificates

17

 

SECTION  7.

Inspection of Records

17

 

SECTION  8.

Auditors

17

 

 

 

 

ARTICLE VIII — OFFICES

 

 

 

 

SECTION  1.

Principal Office

18

 

SECTION  2.

Other Offices

18

 

 

 

 

ARTICLE IX — Waiver of Notice

18

 

 

ARTICLE X — Fiscal Year

18

 

 

ARTICLE XI — Seal

19

 

 

ARTICLE XII — Amendments

19

 

ii



 

BY-LAWS

 

OF

 

INTERNATIONAL BUSINESS MACHINES CORPORATION

 

ARTICLE I

 

DEFINITIONS

 

In these By-laws, and for all purposes hereof, unless there be something in the subject or context inconsistent therewith:

 

(a) ‘Corporation’ shall mean International Business Machines Corporation.

 

(b) ‘Certificate of Incorporation’ shall mean the restated Certificate of Incorporation as filed on May 27, 1992, together with any and all amendments and subsequent restatements thereto.

 

(c)  ‘Board’ shall mean the Board of Directors of the Corporation.

 

(d) ‘stockholders’ shall mean the stockholders of the Corporation.

 

(e) ‘Chairman of the Board’, ‘Vice Chairman of the Board’, ‘Chairman of the Executive Committee’, ‘Chief Executive Officer,’ ‘Chief Financial Officer’, ‘Chief Accounting Officer’, ‘President’, ‘Executive Vice President’, ‘Senior Vice President’, ‘Vice President’, ‘Treasurer’, ‘Secretary’, or ‘Controller’, as the case may be, shall mean the person at any given time occupying the particular office with the Corporation.

 

ARTICLE II

 

MEETINGS OF STOCKHOLDERS

 

SECTION 1.  Place of Meetings.  Meetings of the stockholders of the Corporation shall be held at such place either within or outside the State of New York as may from time to time be fixed by the Board or specified or fixed in the notice of any such meeting.

 

SECTION 2.  Annual Meetings.  The annual meeting of the stockholders of the Corporation for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held on the last Tuesday of April of each year, if not a legal holiday, or, if such day shall be a legal holiday, then on the next succeeding day not a legal holiday, or any other day as determined by the Board. If the directors to be elected at such annual meeting shall not have been elected thereat or at any adjournment thereof, the Board shall forthwith call a special meeting of the stockholders for the election of directors to be held as soon thereafter as convenient and give notice thereof as provided in these By-laws in respect of the notice of an

 

1



 

annual meeting of the stockholders. At such special meeting the stockholders may elect the directors and transact other business with the same force and effect as at an annual meeting of the stockholders duly called and held.

 

SECTION 3.  Special Meetings.  Special meetings of the stockholders, unless otherwise provided by law, may be called at any time by the Chairman of the Board or by the Board, and shall be called by the Board upon written request delivered to the Secretary of the Corporation by the holder(s) with the power to vote and dispose of at least 25% of the outstanding shares of the Corporation.  Such request shall be signed by each such holder, stating the number of shares owned by each holder, and shall indicate the purpose of the requested meeting.  In addition, any stockholder(s) requesting a special meeting shall promptly provide any other information reasonably requested by the Corporation.

 

SECTION 4.  Notice of Meetings.  Notice of each meeting of the stockholders, annual or special, shall be given in the name of the Chairman of the Board, a Vice Chairman of the Board or the President or a Vice President or the Secretary.  Such notice shall state the purpose or purposes for which the meeting is called and the date and hour when and the place where it is to be held. A copy thereof shall be duly delivered or transmitted to all stockholders of record entitled to vote at such meeting, and all stockholders of record who, by reason of any action proposed to be taken at such meeting, would be entitled to have their stock appraised if such action were taken, not less than ten or more than sixty days before the day on which the meeting is called to be held. If mailed, such copy shall be directed to each stockholder at the address listed on the record of stockholders of the Corporation, or if the stockholder shall have filed with the Secretary a written request that notices be mailed to some other address, it shall be mailed to the address designated in such request. Nevertheless, notice of any meeting of the stockholders shall not be required to be given to any stockholder who shall waive notice thereof as hereinafter provided in Article IX of these By-laws. Except when expressly required by law, notice of any adjourned meeting of the stockholders need not be given nor shall publication of notice of any annual or special meeting thereof be required.

 

SECTION 5.  Quorum.  Except as otherwise provided by law, at all meetings of the stockholders, the presence of holders of record of a majority of the outstanding shares of stock of the Corporation having voting power, in person or represented by proxy and entitled to vote thereat, shall be necessary to constitute a quorum for the transaction of business. In the absence of a quorum at any such meeting or any adjournment or adjournments thereof, a majority in voting interest of those present in person or represented by proxy and entitled to vote thereat, or, in the absence of all the stockholders, any officer entitled to preside at, or to act as secretary of, such meeting, may adjourn such meeting from time to time without further notice, other than by announcement at the meeting at which such adjournment shall be taken, until a quorum shall be present thereat. At any adjourned meeting at which a quorum shall be present any business may be transacted which might have been transacted at the meeting as originally called.

 

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SECTION  6.  Organization.  At each meeting of the stockholders, the Chairman of the Board, or in the absence of the Chairman of the Board, the President, or in the absence of the Chairman of the Board and the President, a Vice Chairman of the Board, or if the Chairman of the Board, the President, and all Vice Chairmen of the Board shall be absent therefrom, an Executive Vice President, or if the Chairman of the Board, the President, all Vice Chairmen of the Board and all Executive Vice Presidents shall be absent therefrom, a Senior Vice President shall act as chairman. The Secretary, or, if the Secretary shall be absent from such meeting or unable to act, the person whom the Chairman of such meeting shall appoint secretary of such meeting shall act as secretary of such meeting and keep the minutes thereof.

 

SECTION  7.   Items of Business.  The items of business at all meetings of the stockholders shall be, insofar as applicable, as follows:

 

·     Call to order.

 

·     Proof of notice of meeting or of waiver thereof.

 

·     Appointment of inspectors of election, if necessary.

 

·     A quorum being present.

 

·     Reports.

 

·     Election of directors proposed by the Corporation’s Board of Directors, as set forth in the Corporation’s proxy statement.

 

·     Other business specified in the notice of the meeting.

 

·     Voting.

 

·     Adjournment.

 

Any items of business not referred to in the foregoing may be taken up at the meeting as the chairman of the meeting shall determine.

 

No other business shall be transacted at any annual meeting of stockholders, except business as may be: (i) specified in the notice of meeting (including stockholder proposals included in the Corporation’s proxy materials under Rule 14a-8 of Regulation 14A under the Securities Exchange Act of 1934), (ii) otherwise brought before the meeting by or at the direction of the Board of Directors, or (iii) a proper subject for the meeting which is timely submitted by a stockholder of the Corporation entitled to vote at such meeting who complies fully with the notice requirements set forth below.

 

3



 

For business to be properly submitted by a stockholder before any annual meeting under subparagraph (iii) above, a stockholder must give timely notice in writing of such business to the Secretary of the Corporation.  To be considered timely, a stockholder’s notice must be received by the Secretary at the principal executive offices of the Corporation not less than 120 calendar days nor more than 150 calendar days before the anniversary date of the Corporation’s proxy statement released to stockholders in connection with the prior year’s annual meeting.

 

However, if no annual meeting was held in the previous year, or if the date of the applicable annual meeting has been changed by more than 30 days from the anniversary date of the prior year’s annual meeting, a stockholder’s notice must be received by the Secretary not later than the 10th calendar day following the date on which the Corporation publicly announces the date of the applicable annual meeting.

 

A stockholder’s notice to the Secretary to submit business to an annual meeting of stockholders shall set forth: (i) the name and address of the stockholder, (ii) the number of shares of stock held of record and beneficially by such stockholder, (iii) the name in which all such shares of stock are registered on the stock transfer books of the Corporation, (iv) a representation that the stockholder intends to appear at the meeting in person or by proxy to submit the business specified in such notice, (v) a brief description of the business desired to be submitted to the annual meeting, including the complete text of any resolutions intended to be presented at the annual meeting, and the reasons for conducting such business at the annual meeting, (vi) any personal or other material interest of the stockholder in the business to be submitted,  and (vii) all other information relating to the proposed business which may be required to be disclosed under applicable law.   In addition, a stockholder seeking to submit such business at the meeting shall promptly provide any other information reasonably requested by the Corporation.

 

The chairman of the meeting shall determine all matters relating to the efficient conduct of the meeting, including, but not limited to, the items of business, as well as the maintenance of order and decorum. The chairman shall, if the facts warrant, determine and declare that any putative business was not properly brought before the meeting in accordance with the procedures prescribed by this Section 7, in which case such business shall not be transacted.

 

Notwithstanding the foregoing provisions of this Section 7, a stockholder who seeks to have any proposal included in the Corporation’s proxy materials shall comply with the requirements of Rule 14a-8 under Regulation 14A of the Securities Exchange Act of 1934, as amended.

 

4



 

SECTION 8.  Voting.  Except as otherwise provided by law, each holder of record of shares of stock of the Corporation having voting power shall be entitled at each meeting of the stockholders to one vote for every share of such stock standing in the stockholder’s name on the record of stockholders of the Corporation:

 

(a) on the date fixed pursuant to the provisions of Section 5 of Article VII of these By-laws as the record date for the determination of the stockholders who shall be entitled to vote at such meeting, or

 

(b) if such record date shall not have been so fixed, then at the close of business on the day next preceding the day on which notice of such meeting shall have been given, or

 

(c) if such record date shall not have been so fixed and if no notice of such meeting shall have been given, then at the time of the call to order of such meeting.

 

Any vote on stock of the Corporation at any meeting of the stockholders may be given by the stockholder of record entitled thereto in person or by proxy appointed by such stockholder or by the stockholder’s attorney thereunto duly authorized and delivered or transmitted to the secretary of such meeting at or prior to the time designated in the order of business for turning in proxies. At all meetings of the stockholders at which a quorum shall be present, all matters (except where otherwise provided by law, the Certificate of Incorporation or these By-laws) shall be decided by the vote of a majority in voting interest of the stockholders present in person or represented by proxy and entitled to vote thereat.  Unless required by law, or determined by the chairman of the meeting to be advisable, the vote on any question need not be by ballot. On a vote by ballot, each ballot shall be signed by the stockholder voting, or by the stockholder’s proxy as such, if there be such proxy.

 

SECTION 9.  List of Stockholders.  A list, certified by the Secretary, of the stockholders of the Corporation entitled to vote shall be produced at any meeting of the stockholders upon the request of any stockholder of the Corporation pursuant to the provisions of applicable law, the Certificate of Incorporation or these By-laws.

 

SECTION  10.   Inspectors of Election.   Prior to the holding of each annual or special meeting of the stockholders, two inspectors of election to serve thereat shall be appointed by the Board, or, if the Board shall not have made such appointment, by the Chairman of the Board. If there shall be a failure to appoint inspectors, or if, at any such meeting, any inspector so appointed shall be absent or shall fail to act or the office shall become vacant, the chairman of the meeting may, and at the request of a stockholder present in person and entitled to vote at such meeting shall, appoint such inspector or inspectors of election, as the case may be, to act thereat. The inspectors of election so appointed to act at any meeting of the stockholders, before entering upon the discharge of their duties, shall be sworn faithfully to execute the duties of inspectors at such meeting, with strict impartiality and according to the best of their ability, and the oath so taken shall be subscribed by them. Such inspectors of election shall take charge of the

 

5



 

polls, and, after the voting on any question, shall make a certificate of the results of the vote taken. No director or candidate for the office of director shall act as an inspector of an election of directors. Inspectors need not be stockholders.

 

ARTICLE III

 

BOARD OF DIRECTORS

 

SECTION 1.  General Powers.  The business and affairs of the Corporation shall be managed by the Board. The Board may exercise all such authority and powers of the Corporation and do all such lawful acts and things as are not by law, the Certificate of Incorporation or these By-laws, directed or required to be exercised or done by the stockholders.

 

SECTION 2.  Number; Qualifications; Election; Term of Office.  The number of directors of the Corporation shall be fourteen, but the number thereof may be increased to not more than twenty-five, or decreased to not less than nine, by amendment of these By-laws. The directors shall be elected at the annual meeting of the stockholders. At each meeting of the stockholders for the election of directors at which a quorum is present, the vote required for election of a director shall, except in a contested election, be the affirmative vote of a majority of the votes cast in favor of or against such nominee.  In a contested election, a nominee receiving a plurality of the votes cast at such election shall be elected.  An election shall be considered to be contested if, as of the record date for such meeting, there are more nominees for election than positions on the Board to be filled by election at the meeting.  Each director shall hold office until the annual meeting of the stockholders which shall be held next after the election of such director and until a successor shall have been duly elected and qualified, or until death, or until the director shall have resigned as hereinafter provided in Section 10 of this Article III.

 

SECTION 3.  Place of Meetings.  Meetings of the Board shall be held at such place either within or outside State of New York as may from time to time be fixed by the Board or specified or fixed in the notice of any such meeting.

 

SECTION 4.  First Meeting.  The Board shall meet for the purpose of organization, the election of officers and the transaction of other business, on the same day the annual meeting of stockholders is held. Notice of such meeting need not be given. Such meeting may be held at any other time or place which shall be specified in a notice thereof given as hereinafter provided in Section 7 of this Article III.

 

SECTION 5.  Regular Meetings.  Regular meetings of the Board shall be held at times and dates fixed by the Board or at such other times and dates as the Chairman of the Board shall determine and as shall be specified in the notice of such meetings. Notice of regular meetings of the Board need not be given except as otherwise required by law or these By-laws.

 

6



 

SECTION 6.  Special Meetings.  Special meetings of the Board may be called by the Chairman of the Board, provided, however, that if the Chairman of the Board is unavailable, a special meeting of the Board may be called by agreement of each of the remaining members of the Executive Committee.

 

SECTION 7.  Notice of Meetings.  Notice of each special meeting of the Board (and of each regular meeting for which notice shall be required) shall be given by the Secretary as hereinafter provided in this Section 7, in which notice shall be stated the time, place and, if required by law or these By-laws, the purposes of such meeting. Notice of each such meeting shall be mailed, postage prepaid, to each director, by first-class mail, at least four days before the day on which such meeting is to be held, or shall be sent by facsimile transmission or comparable medium, or be delivered personally or by telephone, before the time at which such meeting is to be held. Notice of any such meeting need not be given to any director who shall waive notice thereof as provided in Article IX of these By-laws. Any meeting of the Board shall be a legal meeting without notice thereof having been given, if all the directors of the Corporation then holding office shall be present thereat.

 

SECTION 8.  Quorum and Manner of Acting.  A majority of the Board shall be present in person at any meeting of the Board in order to constitute a quorum for the transaction of business at such meeting. Participation in a meeting by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other shall constitute presence in person at a meeting. Except as otherwise expressly required by law or the Certificate of Incorporation and except also as specified in Section 1, Section 5, and Section 6 of Article IV, in Section 3 of Article V and in Article XII of these By-laws, the act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board. In the absence of a quorum at any meeting of the Board, a majority of the directors present thereat may adjourn such meeting from time to time until a quorum shall be present thereat. Notice of any adjourned meeting need not be given. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called. The directors shall act only as a Board and the individual directors shall have no power as such.

 

SECTION  9.   Organization.   At each meeting of the Board, the Chairman of the Board, or in the case of the Chairman’s absence therefrom, the President, or in the case of the President’s absence therefrom, a Vice Chairman, or in the case of the absence of all such persons, another director chosen by a majority of directors present, shall act as chairman of the meeting and preside thereat. The Secretary, or if the Secretary shall be absent from such meeting, any person appointed by the chairman, shall act as secretary of the meeting and keep the minutes thereof.

 

SECTION 10.  Resignations.

 

(a) Any director of the Corporation may resign at any time by giving written notice of resignation to the Board or the Chairman of the Board or the Secretary. Subject to Section 10(b), any such resignation shall take effect at the time specified therein, or if

 

7


 

the time when it shall become effective shall not be specified therein, then it shall take effect immediately upon its receipt; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

 

(b) In an uncontested election, any incumbent nominee for director who does not receive an affirmative vote of a majority of the votes cast in favor of or against such nominee shall promptly tender his or her resignation after such election.  The independent directors of the Board, giving due consideration to the best interests of the Corporation and its stockholders, shall evaluate the relevant facts and circumstances, and shall make a decision, within 90 days after the election, on whether to accept the tendered resignation.  Any director who tenders a resignation pursuant to this provision shall not participate in the Board’s decision. The Board will promptly disclose publicly its decision and, if applicable, the reasons for rejecting the tendered resignation.

 

SECTION 11.  Vacancies.  Any vacancy in the Board, whether arising from death, resignation, an increase in the number of directors or any other cause, may be filled by the Board.

 

SECTION 12.  Retirement of Directors. The Board may prescribe a retirement policy for directors on or after reaching a certain age, provided, however, that such retirement shall not cut short the annual term for which any director shall have been elected by the stockholders.

 

ARTICLE IV

 

EXECUTIVE AND OTHER COMMITTEES

 

SECTION 1.  Executive Committee.  The Executive Committee shall be comprised of the Chairman of the Board, and each of the respective chairs of the (i) Audit Committee, (ii) Executive Compensation and Management Resources Committee, and (iii) Directors and Corporate Governance Committee, in each case including any successor committee. The Chairman of the Board shall serve as the Chairman of the Executive Committee to preside at all meetings of such Committee.  The Secretary, or if the Secretary shall be absent from such meeting, any person appointed by the chairman, shall act as secretary of the meeting and keep the minutes thereof.

 

SECTION 2.  Powers of the Executive Committee.  To the extent permitted by law, the Executive Committee may exercise all the powers of the Board in the management of specified matters where such authority is delegated to it by the Board, and also, to the extent permitted by law, the Executive Committee shall have, and may exercise, all the powers of the Board in the management of the business and affairs of the Corporation (including the power to authorize the seal of the Corporation to be affixed to all papers which may require it; but excluding the power to appoint a member of the Executive Committee) in such manner as the Executive Committee shall deem to be in the best interests of the Corporation and not inconsistent with any prior specific action of the Board. An act of the Executive Committee taken within the scope of its authority shall be an act of the Board. The Executive Committee shall render in the form

 

8



 

of minutes a report of its several acts at each regular meeting of the Board and at any other time when so directed by the Board.

 

SECTION 3.  Meetings of the Executive Committee.  Regular meetings of the Executive Committee shall be held at such times, on such dates and at such places as shall be fixed by resolution adopted by a majority of the Executive Committee, of which regular meetings notice need not be given, or as shall be fixed by the Chairman of the Executive Committee or in the absence of the Chairman of the Executive Committee the Chief Executive Officer and specified in the notice of such meeting. Special meetings of the Executive Committee may be called by the Chairman of the Executive Committee or by the Chief Executive Officer. Notice of each such special meeting of the Executive Committee (and of each regular meeting for which notice shall be required), stating the time and place thereof shall be mailed, postage prepaid, to each member of the Executive Committee, by first-class mail, at least four days before the day on which such meeting is to be held, or shall be sent by facsimile transmission or comparable medium, or be delivered personally or by telephone, at least twenty-four hours before the time at which such meeting is to be held; but notice need not be given to a member of the Executive Committee who shall waive notice thereof as provided in Article IX of these By-laws, and any meeting of the Executive Committee shall be a legal meeting without any notice thereof having been given, if all the members of such Committee shall be present thereat.

 

SECTION 4.  Quorum and Manner of Acting of the Executive Committee.  Four members of the Executive Committee shall constitute a quorum for the transaction of business, and the act of a majority of the members of the Executive Committee present at a meeting at which a quorum shall be present shall be the act of the Executive Committee. Participating in a meeting by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other shall constitute presence at a meeting of the Executive Committee. The members of the Executive Committee shall act only as a committee and individual members shall have no power as such.

 

SECTION 5.  Other Committees.  The Board may, by resolution adopted by a majority of the Board, designate members of the Board to constitute other committees, which shall have, and may exercise, such powers as the Board may by resolution delegate to them, and shall in each case consist of such number of directors as the Board may determine; provided, however, that each such committee shall have at least three directors as members thereof. Such a committee may either be constituted for a specified term or may be constituted as a standing committee which does not require annual or periodic reconstitution. A majority of all the members of any such committee may determine its action and its quorum requirements and may fix the time and place of its meetings, unless the Board shall otherwise provide. Participating in a meeting by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other shall constitute presence at a meeting of such other committees.

 

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In addition to the foregoing, the Board may, by resolution adopted by a majority of the Board, create a committee of indeterminate membership and duration and not subject to the limitations as to the membership, quorum and manner of meeting and acting prescribed in these By-laws, which committee, in the event of a major disaster or catastrophe or national emergency which renders the Board incapable of action by reason of the death, physical incapacity or inability to meet of some or all of its members, shall have, and may exercise all the powers of the Board in the management of the business and affairs of the Corporation (including, without limitation, the power to authorize the seal of the Corporation to be affixed to all papers which may require it and the power to fill vacancies in the Board). An act of such committee taken within the scope of its authority shall be an act of the Board.

 

SECTION 6.  Changes in Committees; Resignations; Removals; Vacancies.  The Board shall have power, by resolution adopted by a majority of the Board, at any time to change or remove the members of, to fill vacancies in, and to discharge any committee created pursuant to these By-laws, either with or without cause. Any member of any such committee may resign at any time by giving written notice to the Board or the Chairman of the Board or the Secretary. Such resignation shall take effect upon receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, acceptance of such resignation shall not be necessary to make it effective. Any vacancy in any committee, whether arising from death, resignation, an increase in the number of committee members or any other cause, shall be filled by the Board in the manner prescribed in these By-laws for the original appointment of the members of such committee.

 

ARTICLE V

 

OFFICERS

 

SECTION 1.  Number and Qualifications. The officers of the Corporation shall include the Chairman of the Board, and may include one or more Vice Chairmen of the Board, the President, one or more Vice Presidents (one or more of whom may be designated as Executive Vice Presidents or as Senior Vice Presidents or by other designations), the Treasurer, the Secretary and the Controller.  Officers shall be elected from time to time by the Board, each to hold office until a successor shall have been duly elected and shall have qualified, or until death, or until resignation as hereinafter provided in Section 2 of this Article V, or until removed as hereinafter provided in Section 3 of this Article V.

 

SECTION  2.   Resignations.   Any officer of the Corporation may resign at any time by giving written notice of resignation to the Board, the Chairman of the Board, the Chief Executive Officer or the Secretary. Any such resignation shall take effect at the time specified therein, or, if the time when it shall become effective shall not be specified therein, then it shall become effective upon its receipt; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

 

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SECTION  3.  Removal.  Any officer of the Corporation may be removed, either with or without cause, at any time, by a resolution adopted by a majority of the Board at any meeting of the Board.

 

SECTION  4.  Vacancies.  A vacancy in any office, whether arising from death, resignation, removal or any other cause, may be filled for the unexpired portion of the term of office which shall be vacant, in the manner prescribed in these By-laws for the regular election or appointment to such office.

 

SECTION  5.  Chairman of the Board.  The Chairman of the Board shall, if present, preside at each meeting of the stockholders and of the Board and shall perform such other duties as may from time to time be assigned by the Board. The Chairman may sign certificates representing shares of the stock of the Corporation pursuant to the provisions of Section 1 of Article VII of these By-laws; sign, execute and deliver in the name of the Corporation all deeds, mortgages, bonds, contracts or other instruments authorized by the Board, except in cases where the signing, execution or delivery thereof shall be expressly delegated by the Board or these By-laws to some other officer or agent of the Corporation or where they shall be required by law otherwise to be signed, executed and delivered; and affix the seal of the Corporation to any instrument which shall require it. The Chairman of the Board, when there is no President or in the absence or incapacity of the President, shall perform all the duties and functions and exercise all the powers of the President.

 

SECTION 6.  Vice Chairman of the Board. Each Vice Chairman of the Board shall assist the Chairman of the Board and have such other duties as may be assigned by the Board or the Chairman of the Board. The Vice Chairman may sign certificates representing shares of the stock of the Corporation pursuant to the provisions of Section 1 of Article VII of these By-laws; sign, execute and deliver in the name of the Corporation all deeds, mortgages, bonds, contracts or other instruments authorized by the Board, except in cases where the signing, execution or delivery thereof shall be expressly delegated by the Board or these By-laws to some officer or agent of the Corporation or where they shall be required by law otherwise to be signed, executed and delivered; and affix the seal of the Corporation to any instrument which shall require it.

 

SECTION  7.  President.  The President shall perform all such duties as from time to time may be assigned by the Board or the Chairman of the Board. The President may sign certificates representing shares of the stock of the Corporation pursuant to the provisions of Section 1 of Article VII of these By-laws; sign, execute and deliver in the name of the Corporation all deeds mortgages, bonds, contracts or other instruments authorized by the Board, except in cases where the signing, execution or delivery thereof shall be expressly delegated by the Board or these By-laws to some other officer or agent of the Corporation or where they shall be required by law otherwise to be signed, executed and delivered, and affix the seal of the Corporation to any instrument which shall require it; and, in general, perform all duties incident to the office of President. The President shall in the absence or incapacity of the Chairman of the

 

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Board, perform all the duties and functions and exercise all the powers of the Chairman of the Board.

 

SECTION  8.   Designated Officers.   (a)  Chief Executive Officer.  Either the Chairman of the Board, or the President, as the Board of Directors may designate, shall be the Chief Executive Officer of the Corporation. The officer so designated shall have, in addition to the powers and duties applicable to the office set forth in Section 5 or 7 of this Article V, general and active supervision over the business and affairs of the Corporation and over its several officers, agents, and employees, subject, however, to the control of the Board. The Chief Executive Officer shall see that all orders and resolutions of the Board are carried into effect, be an ex officio member of all committees of the Board (except the Audit Committee, the Directors and Corporate Governance Committee, and committees specifically empowered to fix or approve the Chief Executive Officer’s compensation or to grant or administer bonus, option or other similar plans in which the Chief Executive Officer is eligible to participate), and, in general, shall perform all duties incident to the position of Chief Executive Officer and such other duties as may from time to time be assigned by the Board.    (b) Other Designated Officers.  The Board of Directors may designate officers to serve as Chief Financial Officer, Chief Accounting Officer and other such designated positions and to fulfill the responsibilities of such designated positions in addition to their duties as officers as set forth in this Article V.

 

SECTION 9.  Executive Vice Presidents, Senior Vice Presidents and Vice Presidents. Each Executive and Senior Vice President shall perform all such duties as from time to time may be assigned by the Board or the Chairman of the Board or a Vice Chairman of the Board or the President. Each Vice President shall perform all such duties as from time to time may be assigned by the Board or the Chairman of the Board or a Vice Chairman of the Board or the President or an Executive or a Senior Vice President. Any Vice President may sign certificates representing shares of stock of the Corporation pursuant to the provisions of Section 1 of Article VII of these By-laws.

 

SECTION 10.  Treasurer.  The Treasurer shall:

 

(a) have charge and custody of, and be responsible for, all the funds and securities of the Corporation, and may invest the same in any securities, may open, maintain and close accounts for effecting any and all purchase, sale, investment and lending transactions in securities of any and all kinds for and on behalf of the Corporation or any employee pension or benefit plan fund or other fund established by the Corporation, as may be permitted by law;

 

(b) keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation;

 

(c) deposit all moneys and other valuables to the credit of the Corporation in such depositaries as may be designated by the Board or the Executive Committee;

 

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(d) receive, and give receipts for, moneys due and payable to the Corporation from any source whatsoever;

 

(e) disburse the funds of the Corporation and supervise the investment of its funds, taking proper vouchers therefor;

 

(f) render to the Board, whenever the Board may require, an account of all transactions as Treasurer; and

 

(g) in general, perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned by the Board or the Chairman of the Board or a Vice Chairman of the Board or the President or an Executive or Senior Vice President.

 

SECTION 11.  Secretary.  The Secretary shall:

 

(a) keep or cause to be kept in one or more books provided for the purpose, the minutes of all meetings of the Board, the Executive Committee and other committees of the Board and the stockholders;

 

(b) see that all notices are duly given in accordance with the provisions of these By-laws and as required by law;

 

(c) be custodian of the records and the seal of the Corporation and affix and attest the seal to all stock certificates of the Corporation and affix and attest the seal to all other documents to be executed on behalf of the Corporation under its seal;

 

(d) see that the books, reports, statements, certificates and other documents and records required by law to be kept and filed are properly kept and filed; and

 

(e) in general, perform all the duties incident to the office of Secretary and such other duties as from time to time may be assigned by the Board or the Chairman of the Board or a Vice Chairman of the Board or the President or an Executive or Senior Vice President.

 

SECTION  12.  Controller.  The Controller shall:

 

(a) have control of all the books of account of the Corporation;

 

(b) keep a true and accurate record of all property owned by it, of its debts and of its revenues and expenses;

 

(c) keep all accounting records of the Corporation (other than the accounts of receipts and disbursements and those relating to the deposits of money and other valuables of the Corporation, which shall be kept by the Treasurer);

 

(d) render to the Board, whenever the Board may require, an account of the financial condition of the Corporation; and

 

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(e) in general, perform all the duties incident to the office of Controller and such other duties as from time to time may be assigned by the Board or the Chairman of the Board or a Vice Chairman of the Board or the President or an Executive or Senior Vice President.

 

SECTION 13.  Compensation.  The compensation of the officers of the Corporation shall be fixed from time to time by the Board; provided, however, that the Board may delegate to a committee the power to fix or approve the compensation of any officers. An officer of the Corporation shall not be prevented from receiving compensation by reason of being also a director of the Corporation; but any such officer who shall also be a director shall not have any vote in the determination of the amount of compensation paid to such officer.

 

ARTICLE VI

 

CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.

 

SECTION 1.  Execution of Contracts.  Except as otherwise required by law or these By-laws, any contract or other instrument may be executed and delivered in the name and on behalf of the Corporation by any officer (including any assistant officer) of the Corporation. The Board or the Executive Committee may authorize any agent or employee to execute and deliver any contract or other instrument in the name and on behalf of the Corporation, and such authority may be general or confined to specific instances as the Board or such Committee, as the case may be, may by resolution determine.

 

SECTION 2.  Loans.  Unless the Board shall otherwise determine, the Chairman of the Board or a Vice Chairman of the Board or the President or any Vice President, acting together with the Treasurer or the Secretary, may effect loans and advances at any time for the Corporation from any bank, trust company or other institution, or from any firm, corporation or individual, and for such loans and advances may make, execute and deliver promissory notes, bonds or other certificates or evidences of indebtedness of the Corporation, but in making such loans or advances no officer or officers shall mortgage, pledge, hypothecate or transfer any securities or other property of the Corporation, except when authorized by resolution adopted by the Board.

 

SECTION 3.  Checks, Drafts, etc.  All checks, drafts, bills of exchange or other orders for the payment of money out of the funds of the Corporation, and all notes or other evidences of indebtedness of the Corporation, shall be signed in the name and on behalf of the Corporation by such persons and in such manner as shall from time to time be authorized by the Board or the Executive Committee or authorized by the Treasurer  acting together with either the General Manager of an operating unit or a nonfinancial Vice President of the Corporation, which authorization may be general or confined to specific instances.

 

SECTION 4.  Deposits.  All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust

 

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companies or other depositaries as the Board or the Executive Committee may from time to time designate or as may be designated by any officer or officers of the Corporation to whom such power of designation may from time to time be delegated by the Board or the Executive Committee. For the purpose of deposit and for the purpose of collection for the account of the Corporation, checks, drafts and other orders for the payment of money which are payable to the order of the Corporation may be endorsed, assigned and delivered by any officer, employee or agent of the Corporation.

 

SECTION 5.  General and Special Bank Accounts.  The Board or the Executive Committee may from time to time authorize the opening and keeping of general and special bank accounts with such banks, trust companies or other depositaries as the Board or the Executive Committee may designate or as may be designated by any officer or officers of the Corporation to whom such power of designation may from time to time be delegated by the Board or the Executive Committee. The Board or the Executive Committee may make such special rules and regulations with respect to such bank accounts, not inconsistent with the provisions of these By-laws, as it may deem expedient.

 

SECTION 6.  Indemnification.  The Corporation shall, to the fullest extent permitted by applicable law as in effect at any time, indemnify any person made, or threatened to be made, a party to an action or proceeding whether civil or criminal (including an action or proceeding by or in the right of the Corporation) by reason of the fact that such person is (i) an officer or director of the Corporation or (ii) an officer or director of the Corporation who is asked to serve in any capacity at the request of the Corporation in any corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against, in each case, judgments, fines, amounts paid in settlement and reasonable expenses, including attorneys’ fees actually and necessarily incurred as a result of such action or proceeding, or any appeal therein. Such indemnification shall be a contract right that vests upon the occurrence or alleged occurrence of any act or omission to act that forms the basis for or is related to the claim for which indemnification is sought and shall include the right to be paid advances of any expenses incurred by such person in connection with such action, suit or proceeding, and the right to be indemnified for expenses incurred by such person in connection with successfully establishing a right to indemnification, in each case consistent with the provisions of applicable law in effect at any time. Indemnification shall be deemed to be ‘permitted’ within the meaning of the first sentence hereof if it is not expressly prohibited by applicable law as in effect at the time.  The indemnification rights hereunder shall continue as to any such person who has ceased to be an officer or director of the Corporation and shall inure to the benefit of the heirs, executors and administrators of any such person.  If the right of indemnification provided for in this Section 6 is amended or repealed, such amendment or repeal will not limit the indemnification provided for herein with respect to any acts or omissions to act occurring prior to any such amendment or repeal.

 

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ARTICLE VII

 

SHARES

 

SECTION 1.  Stock Certificates.  The shares of the Corporation shall be represented by certificates, or shall be uncertificated shares.  Each owner of stock of the Corporation shall be entitled to have a certificate, in such form as shall be approved by the Board, certifying the number of shares of stock of the Corporation owned.  To the extent that shares are represented by certificates, such certificates of stock shall be signed in the name of the Corporation by the Chairman of the Board or a Vice Chairman of the Board or the President or a Vice President and by the Secretary and sealed with the seal of the Corporation (which seal may be a facsimile, engraved or printed); provided, however, that where any such certificate is signed by a registrar, other than the Corporation or its employee, the signatures of the Chairman of the Board, a Vice Chairman of the Board, the President, the Secretary, and transfer agent or a transfer clerk acting on behalf of the Corporation upon such certificates may be facsimiles, engraved or printed. In case any officer, transfer agent or transfer clerk acting on behalf of the Corporation ceases to be such officer, transfer agent, or transfer clerk before such certificates shall be issued, they may nevertheless be issued by the Corporation with the same effect as if they were still such officer, transfer agent or transfer clerk at the date of their issue.

 

SECTION 2.  Books of Account and Record of Stockholders.  There shall be kept at the office of the Corporation correct books of account of all its business and transactions, minutes of the proceedings of stockholders, Board, and Executive Committee, and a book to be known as the record of stockholders, containing the names and addresses of all persons who are stockholders, the number of shares of stock held, and the date when the stockholder became the owner of record thereof.

 

SECTION 3.  Transfers of Stock.  Transfers of shares of stock of the Corporation shall be made on the record of stockholders of the Corporation only upon authorization by the registered holder thereof, or by an attorney thereunto authorized by power of attorney duly executed and filed with the Secretary or with a transfer agent or transfer clerk, and on surrender of the certificate or certificates for such shares properly endorsed, provided such shares are represented by a certificate, or accompanied by a duly executed stock transfer power and the payment of all taxes thereon.  The person in whose names shares of stock shall stand on the record of stockholders of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation. Whenever any transfers of shares shall be made for collateral security and not absolutely and written notice thereof shall be given to the Secretary or to such transfer agent or transfer clerk, such fact shall be stated in the entry of the transfer.

 

SECTION 4.  Regulations.  The Board may make such additional rules and regulations as it may deem expedient, not inconsistent with these By-laws, concerning the issue, transfer and registration of certificated or uncertificated shares of stock of the Corporation.  It may appoint, or authorize any officer or officers to appoint, one or more

 

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transfer agents or one or more transfer clerks and one or more registrars and may require all certificates of stock to bear the signature or signatures of any of them.

 

SECTION 5.  Fixing of Record Date.  The Board shall fix a time not exceeding sixty nor less than ten days prior to the date then fixed for the holding of any meeting of the stockholders or prior to the last day on which the consent or dissent of the stockholders may be effectively expressed for any purpose without a meeting, as the time as of which the stockholders entitled to notice of and to vote at such meeting or whose consent or dissent is required or may be expressed for any purpose, as the case may be, shall be determined, and all persons who were holders of record of voting stock at such time, and no others, shall be entitled to notice of and to vote at such meeting or to express their consent or dissent, as the case may be.  The Board may fix a time not exceeding sixty days preceding the date fixed for the payment of any dividend or the making of any distribution or the allotment of rights to subscribe for securities of the Corporation, or for the delivery of evidences of rights or evidences of interests arising out of any change, conversion or exchange of capital stock or other securities, as the record date for the determination of the stockholders entitled to receive any such dividend, distribution, allotment, rights or interests, and in such case only the stockholders of record at the time so fixed shall be entitled to receive such dividend, distribution, allotment, rights or interests.

 

SECTION 6.  Lost, Destroyed or Mutilated Certificates.  The holder of any certificate representing shares of stock of the Corporation shall immediately notify the Corporation of any loss, destruction or mutilation of such certificate, and the Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it which the owner thereof shall allege to have been lost or destroyed or which shall have been mutilated, and the Corporation may, in its discretion, require such owner or the owner’s legal representatives to give to the Corporation a bond in such sum, limited or unlimited, and in such form and with such surety or sureties as the Board in its absolute discretion shall determine, to indemnify the Corporation against any claim that may be made against it on account of the alleged loss or destruction of any such certificate, or the issuance of such new certificate. Anything to the contrary notwithstanding, the Corporation, in its absolute discretion, may refuse to issue any such new certificate, except pursuant to legal proceedings under the laws of the State of New York.

 

SECTION 7.  Inspection of Records.  The record of stockholders and minutes of the proceedings of stockholders shall be available for inspection, within the limits and subject to the conditions and restrictions prescribed by applicable law.

 

SECTION 8.  Auditors.  The Board shall employ an independent public or certified public accountant or firm of such accountants who shall act as auditors in making examinations of the consolidated financial statements of the Corporation and its subsidiaries in accordance with generally accepted auditing standards. The auditors shall certify that the annual financial statements are prepared in accordance with generally accepted accounting principles, and shall report on such financial statements

 

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to the stockholders and directors of the Corporation. The Board’s selection of auditors shall be presented for ratification by the stockholders at the annual meeting. Directors and officers, when acting in good faith, may rely upon financial statements of the Corporation represented to them to be correct by the officer of the Corporation having charge of its books of account, or stated in a written report by the auditors fairly to reflect the financial condition of the Corporation.

 

ARTICLE VIII

 

OFFICES

 

SECTION 1.  Principal Office.  The principal office of the Corporation shall be at such place in the Town of North Castle, County of Westchester and State of New York as the Board shall from time to time determine.

 

SECTION 2.  Other Offices.  The Corporation may also have an office or offices other than said principal office at such place or places as the Board shall from time to time determine or the business of the Corporation may require.

 

ARTICLE IX

 

WAIVER OF NOTICE

 

Whenever under the provisions of any law of the State of New York, the Certificate of Incorporation or these By-laws or any resolution of the Board or any committee thereof, the Corporation or the Board or any committee thereof is authorized to take any action after notice to the stockholders, directors or members of any such committee, or after the lapse of a prescribed period of time, such action may be taken without notice and without the lapse of any period of time, if, at any time before or after such action shall be completed, such notice or lapse of time shall be waived by the person or persons entitled to said notice or entitled to participate in the action to be taken, or, in the case of a stockholder, by an attorney thereunto authorized. Attendance at a meeting requiring notice by any person or, in the case of a stockholder, by the stockholder’s attorney, agent or proxy, shall constitute a waiver of such notice on the part of the person so attending, or by such stockholder, as the case may be.

 

ARTICLE X

 

FISCAL YEAR

 

The fiscal year of the Corporation shall end on the thirty-first day of December in each year.

 

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ARTICLE XI

 

SEAL

 

The Seal of the Corporation shall consist of two concentric circles with the IBM logotype appearing in bold face type within the inner circle and the words ‘International Business Machines Corporation’ appearing within the outer circle.

 

ARTICLE XII

 

AMENDMENTS

 

These By-laws may be amended or repealed or new By-laws may be adopted by the stockholders at any annual or special meeting, if the notice thereof mentions that amendment or repeal or the adoption of new By-laws is one of the purposes of such meeting. These By-laws, subject to the laws of the State of New York, may also be amended or repealed or new By-laws may be adopted by the affirmative vote of a majority of the Board given at any meeting, if the notice thereof mentions that amendment or repeal or the adoption of new By-laws is one of the purposes of such meeting.

 

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Exhibit 10.1

 

IBM SUPPLEMENTAL EXECUTIVE RETENTION PLAN

(Effective as of January 1, 2009

with Amendments Adopted through December 2008)

 

AMENDMENT No. 1

 

Instrument of Amendment

 

Article 7.B(2)(c) of the IBM Supplemental Executive Retention Plan is amended, effective December 9, 2014, to read in its entirety as follows:

 

“(c) the Chairman and Chief Executive Officer and the chief human resources officer in all other cases.”

 




Exhibit 10.2

 

IBM EXCESS 401(k) PLUS PLAN

(As Amended and Restated effective as of January 1, 2010)

 

AMENDMENT No. 5

 

Instrument of Amendment

 

Recitals:

 

International Business Machines Corporation (“IBM”) has established and maintains the IBM Excess 401(k) Plus Plan (the “Plan”), an unfunded deferred compensation plan described in Sections 201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended (ERISA).

 

In accordance with Section 10.01 of the Plan, IBM has reserved the right to amend the Plan at any time and from time to time.

 

IBM amended and restated the Plan effective as of January 1, 2010.

 

IBM has determined to amend the Plan, as heretofore restated, in the manner set forth in this Instrument of Amendment, to be effective July 1, 2014.

 

Amendment:

 

Article II (“Definitions”) is amended by modifying the definition of “Retirement” to read, in its entirety, as follows:

 

“Retirement” means termination of employment (a) with at least 30 years of service, (b) after reaching age 55 with at least 15 years of service, (c) after reaching age 62 with at least 5 years of service, or (d) after reaching age 65 with at least 1 year of Service. For purposes of this definition, “year of service” means a year of Eligibility Service as defined in the IBM Personal Pension Plan. Retirement does not include a transfer to an affiliate of the Company that is not participating in the Plan, or death while employed by the Company, even if the Participant satisfies (a), (b), (c) or (d) above prior to his or her transfer or death. Effective July 1, 2014, Retirement also does not include a termination of employment while participating in the Transition to Retirement program, unless the Participant satisfies (a), (b), (c) or (d) above at the time of termination.

 


 



Exhibit 10.3

 

March 17, 2014

 

Kenneth Keverian

 

This letter confirms our offer of IBM employment to you as Senior Vice President, Corporate Strategy reporting to Ginni Rometty, Chairman, President and CEO.

 

You will be appointed to the IBM Performance Team (PT) and the Growth and Transformation Team (G&TT).  You will become an executive officer of the Company, effective on your first day of employment.

 

The elements of your employment offer are:

 

Total Target Cash:

 

Effective on your first day of employment, your total target annualized compensation will be $1,410,000.  It will be comprised of $600,000 annual base salary (paid to you in equal semi-monthly payments) and $810,000 target incentive, plus the opportunity to participate in IBM benefits.  As an exempt regular employee, you will receive a paycheck on a semi-monthly basis, on or around the 15th and 31st of each month. For 2014, your base salary will be prorated to reflect your actual months of IBM service.

 

The incentive payout amount will be determined based on IBM’s business performance and the attainment of your individual annual business objectives.   Your incentive payment for the current performance year, which ends on December 31, 2014, will be prorated to reflect your actual months of IBM service. You must be an active employee on December 31, 2014 in order to be eligible for a payout.

 

Sign-on Bonus:

 

You will be provided a sign-on bonus of $800,000, which will be paid as follows: $500,000 will be included in one of your semi-monthly paychecks within two months of the commencement of your IBM employment and $300,000 will be included in one of your semi-monthly paychecks within two months of the one-year anniversary of your hire date.  These payments will be less applicable tax withholdings.  These payments are subject to the terms and conditions of the repayment agreements you are required to sign.  Please see the attached repayment agreement for the complete terms.

 



 

Equity:

 

You will be awarded a Sign-On Equity Grant of $4,000,000 in planned value. You will receive 100% of this planned value in Restricted Stock Units (RSUs).  RSUs are equivalent in value to shares of IBM stock and, once vested, are paid out in stock (or cash in select countries).  Your equity grant is anticipated to vest as follows:  50% on the first anniversary of your hire date; 25% on the second anniversary of your hire date and 25% on the third anniversary of your hire date. If IBM terminates your employment other than for cause, any unvested portion of the Sign-On Equity Grant shall remain outstanding and continue to vest.

 

You will be awarded a total of $2,800,000 in Performance Share Units (PSUs).  The first award will have $924,000 of planned value and will be based on the 2013-2015 performance period.  The second award will have $1,876,000 in planned value and will be based on the 2014-2016 performance period.  These PSU awards provide a range of payout from zero to 150 percent of units granted, based on attainment of IBM objectives.  Following each three-year PSU performance period, the award will be paid in IBM stock (or cash in select countries), conditioned on your continuous full-time active employment by IBM.

 

Except with respect to the Sign-On Equity Grant specified above, you may be eligible to receive payouts of your full unvested PSU and RSU awards upon termination if the following criteria are met:

 

·                   You are on the Performance Team at the time of departure;

·                   For RSU awards, at least one year has passed since the award grant date; and for PSU awards, at least one year has passed in the performance period;

·                   You have five years of service at the time of departure; and

·                   The payout has been approved by appropriate senior management, the Compensation Committee or the Board, in their discretion.

 

Except as specified above, all RSUs and PSUs are subject to the terms and conditions of the applicable IBM Long-Term Performance Plan and award agreements.  Additional details about these awards will be provided to you after your IBM employment begins.  Subsequent grants may be awarded in IBM’s discretion based on your performance and contribution to the business.

 

2



 

Discretionary Award:

 

No later than 30 days after your hire date, a Discretionary Award in the amount of $1,000,000 will be credited to your Excess 401(k) Plus Plan account. The Discretionary Award will vest 100% on the fourth anniversary of your hire date. IBM shall have the right to forfeit or rescind the full amount of the Discretionary Award, including any investment experience thereon, if you engage in Detrimental Activity (as defined in the Excess 401(k) Plus Plan) within the 12 month period after the date the Discretionary Award vests.

 

You may make an investment election for the Discretionary Award, which will also apply to any other contributions credited under the Excess 401(k) Plus Plan thereafter (including deferrals that you may elect and IBM contributions you may be eligible to receive), unless you change such investment election.  If you do not make an investment election, your account will be notionally invested in the Target Date Fund closest to the year in which you will turn age 60.

 

Within 30 days after your hire date, you may make a distribution election with respect to your Discretionary Award.  This distribution election will apply to your Discretionary Award, as well as to any other contributions credited under the Excess 401(k) Plus Plan thereafter (including deferrals that you may elect and IBM contributions you may be eligible to receive).  If you do not make a distribution election within 30 days of your hire date, your Discretionary Award will be distributed in an immediate lump sum following your separation from service.

 

Distribution election and investment election forms will be provided to you separately. Further details about the available distribution elections and investment options can be found in the Excess 401(k) Plus Plan materials which will also be provided to you separately. Except as set forth in this letter, your Discretionary Award shall be subject to the terms of the Excess 401(k) Plus Plan.

 

Stock Ownership Requirements:

 

You understand that as a Senior Vice President, you will comply with IBM’s stock ownership requirements, which currently require that you attain an ownership level in IBM shares or equivalents equal to three (3) times your base salary plus annual incentive target within five years of your hire date.  This requirement will be expressed as a number of shares, based on the planning price used by the Company in the second quarter of 2014.

 

3



 

Benefits:

 

During your employment, you will be eligible to participate in the various benefit plans which IBM generally makes available to its regular employees, including medical and dental coverage, accident, disability and life insurance, as well as the IBM 401(k) Plus Plan.  This Plan offers a 100% Company match, up to 5% of eligible pay, plus a 1% automatic contribution after you complete one year of IBM service. In addition, if you meet certain eligibility requirements during the annual enrollment period held each fall, you may also be eligible to participate in the IBM Excess 401(k) Plus Plan that provides benefits in excess of the IRS limits.  Additional details on these programs will be provided separately.

 

As is customary at IBM, this offer is contingent upon the completion of our preemployment process: verification of your application materials and your ability to work for IBM without restriction (which means you do not have non-compete obligations or other restrictive clause with your current or former employer; or any non-compete or other restrictions have been disclosed by you and resolved to IBM’s satisfaction).

 

IBM employees are required to comply with IBM’s Business Conduct Guidelines.  Once you have authorized access to the IBM Intranet, you will be able to read and/or print the contents of these documents, and will be required to acknowledge receipt and compliance with the guidelines.

 

Your employment is also contingent upon your compliance with the U.S. immigration law.  The law requires you to complete the U.S. Government Employment Eligibility Verification form (I-9) and to provide on your first day of employment documents that verify your identity and employment eligibility.  By accepting this offer, you will be required to comply with this law.

 

On your first day of employment, you will be required to sign IBM’s form regarding confidential information and intellectual property.  If you would like to review or discuss this document in advance, please feel free to contact me.

 

Accepted:

         /s/ Kenneth Keverian

 

 

 

Date:

            March 17, 2014

 

 

 

Projected Start Date:

    April 1, 2014

 

 

4



 

IBM

Sign-on Payment Repayment Agreement

 

Prior to receiving my $500,000 sign-on payment, I agree to and understand the following:

 

·                   If my employment with IBM is terminated for Cause (as defined in my Noncompetition Agreement) or voluntarily by me within my first two years of active, full time employment, I will repay to IBM the sign-on payment.

 

·                   Should I go on leave before I have actively worked for IBM on a full time basis for two years, my obligation to repay the sign-on payment will be extended for the period of the leave and until the balance of the remaining active employment time has been completed following my return from such leave.  Similarly, if, based on my request, I am converted to part-time employment status before I have actively worked for IBM on a full-time basis for the above stated period of time, my obligation to repay the sign-on payment will be extended for the period of time represented by the difference between two year’s active full-time employment and the hours actually worked on my part-time schedule.

 

·                   This sign-on payment will not be considered part of my earnings for purposes of calculating current or future benefits under any compensation or benefit programs maintained or sponsored by IBM or its subsidiaries, including retirement plans, 401(k) plans and the like.

 

For any situation in which I have agreed above to repay the sign-on payment, I also authorize IBM to deduct the amount of $500,000, less any tax withholdings, owed to IBM from any funds IBM may owe me at the time of my departure, including, but not limited to, wages, commissions, vacation, variable pay.  If, after IBM has deducted the amount from funds owed to me at the time of my departure, a balance owed to IBM remains, I shall repay the balance to IBM.

 

This repayment provision does not constitute a contract of employment or a guarantee of employment for two years or otherwise. Employment is at-will at all times.

 

 

Employee Signature

 

Date

 

 

 

/s/ Kenneth Keverian

 

3/17/2014

 



 

IBM

Sign-on Payment Repayment Agreement

 

Prior to receiving my $300,000 sign-on payment, I agree to and understand the following:

 

·                   If my employment with IBM is terminated for Cause (as defined in my Noncompetition Agreement) or voluntarily by me within my first two years of active, full time employment, I will repay to IBM the sign-on payment.

 

·                   Should I go on leave before I have actively worked for IBM on a full time basis for two years, my obligation to repay the sign-on payment will be extended for the period of the leave and until the balance of the remaining active employment time has been completed following my return from such leave.  Similarly, if, based on my request, I am converted to part-time employment status before I have actively worked for IBM on a full-time basis for the above stated period of time, my obligation to repay the sign-on payment will be extended for the period of time represented by the difference between two year’s active full-time employment and the hours actually worked on my part-time schedule.

 

·                   This sign-on payment will not be considered part of my earnings for purposes of calculating current or future benefits under any compensation or benefit programs maintained or sponsored by IBM or its subsidiaries, including retirement plans, 401(k) plans and the like.

 

For any situation in which I have agreed above to repay the sign-on payment, I also authorize IBM to deduct the amount of $500,000, less any tax withholdings, owed to IBM from any funds IBM may owe me at the time of my departure, including, but not limited to, wages, commissions, vacation, variable pay.  If, after IBM has deducted the amount from funds owed to me at the time of my departure, a balance owed to IBM remains, I shall repay the balance to IBM.

 

This repayment provision does not constitute a contract of employment or a guarantee of employment for two years or otherwise. Employment is at-will at all times.

 

 

Employee Signature

 

Date

 

 

 

/s/ Kenneth Keverian

 

3/17/2014

 




Exhibit 10.4

 

FIRST AMENDMENT dated as of October 16, 2014  (this “ Amendment ”) to the 5-Year Credit Agreement dated as of November 10, 2011 (the “ Credit Agreement ”), among INTERNATIONAL BUSINESS MACHINES CORPORATION (“ IBM ”), JPMORGAN CHASE BANK, N.A., as Administrative Agent, the Subsidiary Borrowers parties thereto (the “ Subsidiary Borrowers ”) , the Lenders parties thereto, and the Syndication Agents and Documentation Agents named therein. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Credit Agreement.

 

RECITALS

 

WHEREAS, IBM has requested that the Credit Agreement be amended as set forth herein.

 

WHEREAS, pursuant to, and in compliance with the requirements of, Section 11.1 of the Credit Agreement, the Required Lenders are willing to agree to this Amendment on the terms set forth herein.

 

NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties hereto agree as follows:

 

SECTION 1.   Amendments to Credit Agreement .  As of the First Amendment Effective Date (as defined below), the Credit Agreement is hereby amended as follows:

 

(a)  By adding the following defined terms to Section 1.1 thereof in the appropriate alphabetical order:

 

Anti-Corruption Laws ”: all laws, rules and regulations of any jurisdiction applicable to the Borrower or its Subsidiaries from time to time concerning or relating to bribery or corruption.

 

Sanctioned Country ”: at any time, a country or territory that is itself the subject or target of any Sanctions (as of October 16, 2014, Cuba, Iran, North Korea, Sudan and Syria).

 

Sanctioned Person ”: at any time, (a) any Person listed in any Sanctions-related list of designated Persons maintained by the Office of Foreign Assets Control of the U.S. Department of the Treasury or the U.S. Department of State, or by the United Nations Security Council, the European Union or any European Union member state, (b) any Person, organized or resident in a Sanctioned Country, or (c) any Person controlled (to the knowledge of the Borrower) by any such Person.

 

Sanctions ”: economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by (a) the U.S. government, including those administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury or the U.S. Department of State or (b) the United Nations Security Council, the European Union, any European Union member state or Her Majesty’s Treasury of the United Kingdom.

 

(b)  By adding the following as Section 4.14, under the heading “Anti-Corruption Laws”:

 

The Borrower has implemented and maintains in effect policies and procedures designed to ensure compliance by the Borrower, its Subsidiaries and their respective directors, officers and employees with Anti-Corruption Laws and applicable Sanctions, and the Borrower and its Subsidiaries, and to the knowledge of the Borrower, their directors, officers and employees, are in

 

[Signature Page to First Amendment]

 



 

compliance with Anti-Corruption Laws and applicable Sanctions in all material respects.  None of (a) the Borrower, any Subsidiary or any of their respective directors, officers or employees, or (b) to the knowledge of the Borrower, any agent of the Borrower or any Subsidiary that will act in any capacity in connection with or receive or direct the application of proceeds from the credit facility established hereby, is a Sanctioned Person.  No Loan or use of proceeds thereof will violate Anti-Corruption Laws or applicable Sanctions.

 

(c)  By adding the following as Section 6.4, under the heading “Anti-Corruption Laws”:

 

Maintain in effect and enforce policies and procedures designed to ensure compliance by it, its Subsidiaries and their respective directors, officers and employees, whether acting directly or through agents, with Anti-Corruption Laws and applicable Sanctions.

 

(d)  By adding the following as Section 7.5, under the heading “Anti-Corruption Laws”:

 

The Borrower and its Subsidiaries shall not use, and shall procure that the respective directors, officers and employees of the Borrower and its Subsidiaries shall not use, the proceeds of any Loan (A) in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any Person in violation of any Anti-Corruption Laws, (B) for the purpose of funding, financing or facilitating any activities, business or transaction of or with any Sanctioned Person, or in any Sanctioned Country, or (C) in any manner that would result in the violation of  any Sanctions applicable to any party hereto.

 

SECTION 2.   Conditions to Effectiveness of First Amendment .  This Amendment shall become effective on the first date (the “ First Amendment Effective Date ”) on which the Administrative Agent (or its counsel) shall have received duly executed counterparts hereof that, when taken together, bear the signatures of IBM, the Subsidiary Borrowers and Lenders representing the Required Lenders.

 

SECTION 3.   Effects on Credit Agreement .  Except as specifically amended herein, all provisions of the Credit Agreement shall continue to be in full force and effect and is hereby in all respects ratified and confirmed.  Except as otherwise expressly provided herein, the execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of any Lender or the Administrative Agent under the Credit Agreement or constitute a waiver of or consent to any provision of the Credit Agreement or to any further or future action on the part of IBM or the Subsidiary Borrowers that would require a waiver or consent of the Required Lenders or the Administrative Agent.

 

SECTION 4.   Expenses .  IBM shall reimburse the Administrative Agent for all reasonable and documented out-of-pocket costs and expenses, including, reasonable and documented attorneys’ fees, in connection with or relating to this Amendment.

 

SECTION 5.   Integration .  This Amendment represents the agreement of IBM, the Subsidiary Borrowers, the Administrative Agent and the Lenders with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Administrative Agent or any Lender relative to subject matter hereof not expressly set forth or referred to herein.

 

SECTION 6.   GOVERNING LAW; WAIVER OF JURY TRIAL .  THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. EACH OF THE BORROWERS, THE ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES

 



 

TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AMENDMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY AND FOR ANY COUNTERCLAIM THEREIN.

 

SECTION 7.   Counterparts .  This Amendment may be executed by one or more of the parties to this Amendment on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument.  Delivery of an executed signature page of this Agreement by email or facsimile transmission shall be effective as delivery of a manually executed counterpart hereof.  A set of the copies of this Amendment signed by all the parties shall be lodged with IBM and the Administrative Agent.

 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective proper and duly authorized officers as of the day and year first above written.

 

 

 

INTERNATIONAL BUSINESS MACHINES CORPORATION

 

 

 

By:

/s/ Raeleen Medrano

 

 

Assistant Treasurer

 

 

 

 

 

JPMORGAN CHASE BANK, N.A., as

 

Administrative Agent,

 

 

 

 

By:

/s/ Goh Siew Tan

 

 

Executive Director

 

 

 

Name of Institution: JPMORGAN CHASE BANK, N.A.

 

 

 

 

By:

/s/ Goh Siew Tan

 

 

 

Executive Director

 

 

 

 

 

Name of Institution: Bank of America, N.A.

 

 

 

 

 

 

By:

/s/ Mukesh Singh

 

 

 

Vice President

 

 

 

 

 

Name of Institution: Barclays Bank PLC

 

 

 

 

 

 

By:

/s/ Luke Syme

 

 

 

Assistant Vice President

 



 

 

Name of Institution: Banco Bilbao Vizcaya Argentaria,

 

S.A. New York Branch

 

 

 

 

 

 

By:

/s/ Veronica Incera

 

 

 

Managing Director

 

 

 

 

 

 

By:

/s/ Mauricio Benitez

 

 

 

Vice President

 

 

 

 

 

 

 

 

 

Name of Institution: BNP Paribas

 

 

 

 

 

 

By:

/s/ Gregory Paul

 

 

 

Managing Director

 

 

 

 

 

 

By:

/s/ Todd Rodgers

 

 

 

Director

 

 

 

 

 

 

 

 

 

Name of Institution: THE BANK OF NEW YORK MELLON

 

 

 

 

 

 

By:

/s/ Thomas J. Tarasovich, Jr.

 

 

 

Vice President

 

 

 

 

 

 

 

 

 

Name of Institution: Mitsubishi UFJ Trust and Banking Corporation,

 

New York Branch

 

 

 

 

 

 

By:

/s/ Makoto Takeda

 

 

 

Senior Vice President

 

 

 

 

 

 

 

 

 

Name of Institution: Canadian Imperial Bank of Commerce, New York Branch

 

 

 

 

 

 

By:

/s/ Robert Robin

 

 

 

Authorized Signatory

 

 

 

 

 

 

By:

/s/ Andrew Campbell

 

 

 

Authorized Signatory

 

 

 

 

 

 

 

 

 

Name of Institution: CITIBANK, N.A., as Syndication Agent

 

 

 

 

 

 

By:

/s/ Susan Olsen

 

 

 

Vice President

 



 

 

Name of Institution: CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH

 

 

 

 

 

 

By:

/s/ Christopher Day

 

 

 

Authorized Signatory

 

 

 

 

 

 

 

/s/ Remy Riester

 

 

 

Authorized Signatory

 

 

 

 

 

 

 

Name of Institution: Deutsche Bank AG New York Branch

 

 

 

 

 

 

By:

/s/ Virginia Cosenza

 

 

 

Vice President

 

 

 

 

 

 

 

/s/ Ming K. Chu

 

 

 

Vice President

 

 

 

 

 

 

 

Name of Institution: GOLDMAN SACHS BANK USA, as a Lender

 

 

 

 

 

 

By:

/s/ Rebecca Kratz

 

 

 

Authorized Signatory

 

 

 

 

 

Name of Institution: HSBC Bank USA, N.A.

 

 

 

 

 

 

By:

/s/ Paul Hatton

 

 

 

Managing Director

 

 

 

 

 

Name of Institution: Industrial and Commercial Bank of China Limited,

 

New York Branch

 

 

 

 

 

 

By:

/s/ Mr. Yuqiang Xiao

 

 

 

General Manager

 

 

 

 

 

Name of Institution: ING Bank NV, Dublin Branch

 

 

 

 

 

 

By:

/s/ Barry Fehily

 

 

 

Country Manager

 

 

 

 

 

 

 

/s/ Aidan Neill

 

 

 

Director

 



 

 

Name of Institution: Intesa Sanpaolo S.p.A.

 

 

 

 

 

 

By:

/s/ John J. Michalisin

 

 

 

First Vice President

 

 

 

 

 

 

 

/s/ Manuela Insana

 

 

 

Vice President

 

 

 

 

 

Name of Institution: LLOYDS BANK PLC

 

 

 

 

 

 

By:

/s/ Stephen Giacolone

 

 

 

Assistant Vice President – G011

 

 

 

 

 

 

 

/s/ Joel Slomko

 

 

 

Assistant Vice President – S088

 

 

 

 

 

Name of Institution: Mizuho Bank, Ltd.

 

 

 

 

 

 

By:

/s/ Bertram H. Tang

 

 

 

Authorized Signatory

 

 

 

 

 

Name of Institution: The Northern Trust Company

 

 

 

 

 

 

By:

/s/ Daniel J. Boote

 

 

 

Senior Vice President

 

 

 

 

 

Name of Institution: PNC Bank, National Association

 

 

 

 

 

 

By:

/s/ Michael A. Richards

 

 

 

Senior Vice President

 

 

 

 

 

Name of Institution: Royal Bank of Canada

 

 

 

 

 

 

By:

/s/ Mark Gronich

 

 

 

Authorized Signatory

 

 

 

 

 

Name of Institution: THE ROYAL BANK OF SCOTLAND PLC

 

 

 

 

 

 

By:

/s/ Matthew Pennachio

 

 

 

Director

 



 

 

Name of Institution: Santander Bank, N.A.

 

 

 

 

 

 

By:

/s/ Marcelo Castro

 

 

 

Managing Director

 

 

 

 

 

Name of Institution: Standard Chartered Bank

 

 

 

 

 

 

By:

/s/ Steven Aloupis

 

 

 

Managing Director

 

 

 

 

 

 

 

/s/ Hsing H. Huang

 

 

 

Associate Director

 

 

 

 

 

Name of Institution: SOCIETE GENERALE

 

 

 

 

 

 

By:

/s/ Kimberly Metzger

 

 

 

Director

 

 

 

 

 

Name of Institution: State Street Bank & Trust Company

 

 

 

 

 

 

By:

/s/ Andrei Bourdine

 

 

 

Vice President

 

 

 

 

 

Name of Institution: Sumitomo Mitsui Banking Corporation

 

 

 

 

 

 

By:

/s/ David W. Kee

 

 

 

Managing Director

 

 

 

 

 

Name of Institution: TORONTO DOMINION (NEW YORK) LLC

 

 

 

 

 

 

By:

/s/ Marie Fernandes

 

 

 

Authorized Signatory

 

 

 

 

 

Name of Institution: UniCredit Bank AG, New York Branch

 

 

 

 

 

 

By:

/s/ Fabio Della Malva

 

 

 

Director

 

 

 

 

 

 

 

/s/ Jeffrey Ferris

 

 

 

Director

 



 

 

Name of Institution: Wells Fargo Bank, N.A.

 

 

 

 

 

 

By:

/s/ Eric Frandson

 

 

 

Managing Director

 

 

 

 

 

Name of Institution: WESTPAC BANKING CORPORATION

 

 

 

 

 

 

By:

/s/ Richard Yarnold

 

 

 

Senior Relationship Manager

 

 

 

Corporate & Institutional Banking

 




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EXHIBIT 12

COMPUTATION OF RATIO OF INCOME FROM CONTINUING OPERATIONS
TO FIXED CHARGES
(Unaudited)

 
  Years Ended December 31:  
(Dollars in millions)
  2014   2013*   2012*   2011*   2010*  

Income from continuing operations before income taxes(1)

  $ 19,993   $ 20,252   $ 22,544   $ 21,482   $ 20,144  

Add:

                               

Fixed charges, excluding capitalized interest

    1,556     1,575     1,593     1,576     1,499  
                       

Income as adjusted before income taxes

  $ 21,549   $ 21,827   $ 24,137   $ 23,058   $ 21,643  
                       
                       

Fixed charges:

                               

Interest expense

  $ 1,025   $ 989   $ 1,004   $ 964   $ 923  

Capitalized interest

    4     22     18     9     5  

Portion of rental expense representative of interest

    531     586     589     612     576  
                       

Total fixed charges

  $ 1,560   $ 1,597   $ 1,611   $ 1,585   $ 1,504  
                       
                       

Ratio of income from continuing operations to fixed charges

    13.8     13.7     15.0     14.5     14.4  

(1)
Income from continuing operations before income taxes excludes (a) amortization of capitalized interest and (b) the company's share in the income and losses of less-than-fifty percent owned affiliates.

*
Reclassified to reflect discontinued operations presentation.



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COMPUTATION OF RATIO OF INCOME FROM CONTINUING OPERATIONS TO FIXED CHARGES (Unaudited)

Exhibit 13

 

Report of Financials

International Business Machines Corporation and Subsidiary Companies

 

MANAGEMENT DISCUSSION

 

 

Overview

 

22

Forward-Looking and Cautionary Statements

 

23

Management Discussion Snapshot

 

23

Description of Business

 

26

Year in Review

 

33

Prior Year in Review

 

53

Other Information

 

64

Looking Forward

 

64

Liquidity and Capital Resources

 

65

Critical Accounting Estimates

 

68

Currency Rate Fluctuations

 

71

Market Risk

 

72

Financing Risks

 

72

Cybersecurity

 

73

Employees and Related Workforce

 

73

Global Financing

 

73

 

 

 

Report of Management

 

78

 

 

 

Report of Independent Registered Public Accounting Firm

 

79

 

 

 

CONSOLIDATED FINANCIAL STATEMENTS

 

 

Earnings

 

80

Comprehensive Income

 

81

Financial Position

 

82

Cash Flows

 

83

Changes in Equity

 

84

 

 

 

 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

A

Significant Accounting Policies

 

86

B

Accounting Changes

 

96

C

Acquisitions/Divestitures

 

97

D

Financial Instruments

 

103

E

Inventories

 

110

F

Financing Receivables

 

110

G

Property, Plant and Equipment

 

113

H

Investments and Sundry Assets

 

113

I

Intangible Assets Including Goodwill

 

114

J

Borrowings

 

115

K

Other Liabilities

 

118

L

Equity Activity

 

118

M

Contingencies and Commitments

 

122

N

Taxes

 

124

O

Research, Development and Engineering

 

127

P

Earnings Per Share of Common Stock

 

127

Q

Rental Expense and Lease Commitments

 

128

R

Stock-Based Compensation

 

128

S

Retirement-Related Benefits

 

131

T

Segment Information

 

145

U

Subsequent Events

 

150

 

 

 

Five-Year Comparison of Selected Financial Data

 

151

 

 

 

Selected Quarterly Data

 

152

 

 

 

Performance Graph

 

153

 

 

 

Board of Directors and Senior Leadership

 

154

 

 

 

Stockholder Information

 

155

 

21



 

Management Discussion

International Business Machines Corporation and Subsidiary Companies

 

OVERVIEW

 

The financial section of the International Business Machines Corporation (IBM or the company) 2014 Annual Report includes the Management Discussion, the Consolidated Financial Statements and the Notes to Consolidated Financial Statements. This Overview is designed to provide the reader with some perspective regarding the information contained in the financial section.

 

Organization of Information

 

·         The Management Discussion is designed to provide readers with an overview of the business and a narrative on the company’s financial results and certain factors that may affect its future prospects from the perspective of the company’s management. The “Management Discussion Snapshot,” beginning on page 23, presents an overview of the key performance drivers in 2014.

 

·         Beginning with the “Year in Review” on page 33, the Management Discussion contains the results of operations for each reportable segment of the business and a discussion of the company’s financial position and cash flows. Other key sections within the Management Discussion include: “Looking Forward” on page 64, and “Liquidity and Capital Resources” on page 65.

 

·         Global Financing is a reportable segment that is measured as a stand-alone entity. A separate “Global Financing” section is included in the Management Discussion beginning on page 73.

 

·         The Consolidated Financial Statements are presented on pages 80 through 85. These statements provide an overview of the company’s income and cash flow performance and its financial position.

 

·         The Notes follow the Consolidated Financial Statements. Among other items, the Notes contain the company’s accounting policies (pages 86 through 96), acquisitions and divestitures (pages 97 through 102), detailed information on specific items within the financial statements, certain contingencies and commitments (pages 122 to 124) and retirement-related plans information (pages 131 to 145).

 

·         The Consolidated Financial Statements and the Notes have been prepared in accordance with accounting principles generally accepted in the United States (GAAP).

 

·         In October 2014, the company announced a definitive agreement to divest its Microelectronics business. The assets and liabilities of the Microelectronics business are reported as held for sale at December 31, 2014. The operating results of the Microelectronics business are reported as discontinued operations. Prior periods have been reclassified to conform to this presentation in the Management Discussion, the Consolidated Financial Statements and the Notes, where applicable, to allow for a meaningful comparison of continuing operations.

 

·         The references to “adjusted for currency” or “at constant currency” in the Management Discussion do not include operational impacts that could result from fluctuations in foreign currency rates. Certain financial results are adjusted based on a simple mathematical model that translates current period results in local currency using the comparable prior year period’s currency conversion rate. This approach is used for countries where the functional currency is the local country currency. This information is provided so that certain financial results can be viewed without the impact of fluctuations in foreign currency rates, thereby facilitating period-to-period comparisons of business performance. See “Currency Rate Fluctuations” on page 71 for additional information.

 

·         Within the financial statements and tables in this Annual Report, certain columns and rows may not add due to the use of rounded numbers for disclosure purposes. Percentages reported are calculated from the underlying whole-dollar numbers.

 

Operating (non-GAAP) Earnings

 

In an effort to provide better transparency into the operational results of the business, the company separates business results into operating and non-operating categories. Operating earnings from continuing operations is a non-GAAP measure that excludes the effects of certain acquisition-related charges, retirement-related costs, discontinued operations and their related tax impacts. For acquisitions, operating earnings exclude the amortization of purchased intangible assets and acquisition-related charges such as in-process research and development, transaction costs, applicable restructuring and related expenses and tax charges related to acquisition integration. For retirement-related costs, the company characterizes certain items as operating and others as non-operating. The company includes defined benefit plan and nonpension postretirement benefit plan service cost, amortization of prior service cost and the cost of defined contribution plans in operating earnings. Non-operating retirement-related cost includes defined benefit plan and nonpension postretirement benefit plan interest cost, expected return on plan assets, amortized actuarial gains/losses, the impacts of any plan curtailments/ settlements and multi-employer plan costs, pension insolvency costs and other costs. Non-operating retirement-related costs are primarily related to changes in pension plan assets and liabilities which are tied to financial market performance and the company considers these costs to be outside the operational performance of the business.

 

Overall, the company believes that providing investors with a view of operating earnings as described above provides increased transparency and clarity into both the operational results of the business and the performance of the company’s pension plans; improves visibility to management decisions and their impacts on operational performance; enables better comparison to peer companies; and allows the company to provide a long-term strategic view of the business going forward. The company’s reportable segment financial results reflect operating earnings from continuing operations, consistent with the company’s management and measurement system.

 

22



 

FORWARD-LOOKING AND CAUTIONARY STATEMENTS

 

Certain statements contained in this Annual Report may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any forward-looking statement in this Annual Report speaks only as of the date on which it is made; the company assumes no obligation to update or revise any such statements. Forward-looking statements are based on the company’s current assumptions regarding future business and financial performance; these statements, by their nature, address matters that are uncertain to different degrees. Forward-looking statements involve a number of risks, uncertainties and other factors that could cause actual results to be materially different, as discussed more fully elsewhere in this Annual Report and in the company’s filings with the Securities and Exchange Commission (SEC), including the company’s 2014 Form 10-K filed on February 24, 2015.

 

MANAGEMENT DISCUSSION SNAPSHOT

 

($ and shares in millions except per share amounts)

 

 

 

 

 

 

 

Yr.-to-Yr.

 

 

 

 

 

 

 

Percent/

 

 

 

 

 

 

 

Margin

 

For the year ended December 31:

 

2014

 

2013

 

Change

 

Revenue

 

$

92,793

 

$

98,367

 

(5.7

)%*

Gross profit margin

 

50.0

%

49.5

%

0.5

pts.

Total expense and other (income)

 

$

26,421

 

$

28,440

 

(7.1

)%

Total expense and other (income)-to-revenue ratio

 

28.5

%

28.9

%

(0.4

)pts.

Income from continuing operations before income taxes

 

$

19,986

 

$

20,244

 

(1.3

)%

Provision for income taxes from continuing operations

 

$

4,234

 

$

3,363

 

25.9

%

Income from continuing operations

 

$

15,751

 

$

16,881

 

(6.7

)%

Income from continuing operations margin

 

17.0

%

17.2

%

(0.2

)pts.

Loss from discontinued operations, net of tax

 

$

(3,729

)

$

(398

)

NM

 

Net income

 

$

12,022

 

$

16,483

 

(27.1

)%

Earnings per share from continuing operations:

 

 

 

 

 

 

 

Assuming dilution

 

$

15.59

 

$

15.30

 

1.9

%

Consolidated earnings per share—assuming dilution

 

$

11.90

 

$

14.94

 

(20.3

)%

Weighted-average shares outstanding

 

 

 

 

 

 

 

Assuming dilution

 

1,010.0

 

1,103.0

 

(8.4

)%

Assets**

 

$

117,532

 

$

126,223

 

(6.9

)%

Liabilities**

 

$

105,518

 

$

103,294

 

2.2

%

Equity**

 

$

12,014