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INTERNATIONAL BUSINESS MACHINES CORPORATION:

ISSUER PUT OPTIONS
Jesse Greene, Jr., the assistant treasurer of International Business Machines Corporation
(IBM), was intrigued by the report he had just received on January 22, 1992. The report
described how a recent ruling by the Securities and Exchange Commission (SEC) allowed
companies with publicly traded common stock to sell put options on their own shares. IBM had
an ongoing need to repurchase its own shares as part of its previously announced $5 billion stock
repurchase plan and to satisfy the demand of its Employee Stock Purchase Program. Greene
recognized that the net price of these repurchases could be reduced with the income received
from selling the put options. He also recognized that if IBM’s stock price were to drop below the
strike price of the puts, the company would be obligated to buy the shares at the strike price
instead of taking advantage of the lower price available on the open market. In addition to the
price risk, Greene was also concerned about how IBM’s stockholder and employees would react
to the news that the company was implementing an option-writing strategy. Although
sophisticated investors understood that options were effective as a risk management tool, the
average investor probably viewed options as speculative investments that should be avoided.
Thus, even if writing puts appeared to be profitable, Greene was not certain he could support a
strategy that might shake the confidence of the company’s stakeholders.
Company History
In 1914, National Cash Register’s star salesperson, Thomas J. Watson, left to rescue the
flagging Computing-Tabulating-Recording Company. By 1920, Watson’s efforts had resulted in
the tripling of C-T-R’s revenues and a complete revitalization of the company, mainly through
aggressive selling to the U.S. government during World War I. Watson then expanded operations
overseas into Europe, Latin America, and the Far East and, in 1924, changed the company’s
name to the International Business Machines Corporation. Through aggressive marketing, savvy
business decisions, and intensive research and development, the company had, by 1940, become
the largest U.S.’s office-machinery firm. Sales were approaching $50 million.
This case was written by Jordan Posell, under the supervision of Associate Professor Kenneth Eades. It was written
as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation.
Copyright © 1992 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved.
To order copies, send an e-mail to sales@dardenbusinesspublishing.com. No part of this publication may be
reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—
electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School
Foundation. Rev. 11/07.
This document is authorized for use only in Joao Amaro de Matos's 2257-Futures and Options T2 S1 22-23 at Universidade Nova de Lisboa (UNL) from Oct 2022 to Dec 2022.
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When Remington Rand’s commercial computer, the UNIVAC, began replacing IBM
machines, IBM quickly responded by using its superior R&D and marketing capabilities to build
market share for commercial computing, which neared 80% in the 1960s and 1970s. Landmark
innovations during this time included the 701 (the company’s first computer in 1952),
FORTRAN programming language (1957), STRETCH systems (which eliminated vacuum
tubes, 1960), the first compatible family of computers (the System/360 in 1964 and the
System/370 in 1970), and floppy disk storage (1971). IBM’s later moves into mid-range systems
(System/38 in 1978 and AS/400 in 1988) and personal computers (the PC-AT, 1984) were
equally successful and spawned new computer-related industries.
The industry shift to open, smaller systems and increasingly rapid technological changes
in the mid-to-late 1980s led to extensive changes at IBM. Concerned more with protecting its
basic businesses than with the new trends and burdened by a conservative, bureaucratic, and
centralized decision-making process, IBM surrendered promising niches such as laptops and
workstations to smaller, nimbler competitors. Runaway costs and a “no-layoff” policy
compounded the company’s woes.
In late November 1991, Chief Executive Officer John F. Akers announced a dramatic
change in how decisions would be made at IBM. The company’s all-powerful management
committee would no longer be responsible for the primary decisions of the operating divisions.
Instead, each division would be treated as an autonomous business free to pursue whatever
market opportunities divisional management desired. The plan included a $3 billion restructuring
charge for the elimination of 20,000 jobs in 1992 that was roughly equal to the personnel cuts of
1991. “There are essentially no operating decisions made here anymore,” said Akers after the
announcement.1
The “new IBM” resembled a holding company more than the single-minded, monolithic
computer giant of previous years. The new semi-independent product-based units had relatively
wide latitudes in product, pricing, and manufacturing decisions; the headquarters staff would
offer guidance on such matters only when asked. The price of this freedom was, of course,
accountability. Units and their managers would be measured against return on capital and profit
goals detailed in “performance contracts” with the parent company. In turn, the success each unit
had in attaining or surpassing the goals would guide the decisions of headquarters in committing
capital and resources to the units. Those units and managers that consistently fell short of their
goals might be let go, something almost unheard of before the late 1980s.
Financial Highlights
After experiencing double-digit revenue expansion through the 1970s and early 1980s,
IBM saw its growth rate decrease to an average of 6.46% in the latter half of the decade.
Revenues for 1991 fell to $64.8 billion, a 6.12% decline from 1990 and the first decline in
revenues since the 1940s. Net income declined from a peak of $6.58 billion in 1984 to a loss of
1
Norm Alster, “IBM as Holding Company,” Forbes (December 23, 1991), 117.
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$564 million in 1991. Including the effects of accounting changes (nonpension postretirement
benefits), the company’s net loss for 1991 was $2.83 billion.
While not as cash rich as it had been, IBM retained a solid balance sheet. With over $5
billion in cash and cash equivalents on the books at the end of 1991, the company had the
liquidity to make strategic moves at will and to cope promptly with any unforeseen crisis. IBM’s
26% consolidated long-term-debt-capitalization ratio left the company with sufficient borrowing
capacity to take advantage of any attractive investment opportunity. Despite its recent problems,
the company also retained its valuable AAA credit rating, primarily on the strength of its balance
sheet and future prospects. Exhibits 1, 2, and 3 report financial data for IBM.
As to be expected, IBM’s stock price reflected the problems faced by the company in the
late 1980s and early 1990s. After peaking at $175 in August 1987, the stock began a steady
decline that continued through the end of 1991. By November 1989, IBM shares were trading
below $100 per share for the first time since 1984. After regaining some of the lost ground
through 1990 and the early part of 1991, the stock price fell back to close out the year at $89.
Despite the company’s hardships and reduced earnings, IBM management refused to
lower the cash dividends that had been paid to stockholders continuously since 1916. Dividends
per share increased from their 1981 level of $3.44 to $4.84 in 1991. The combination of dividend
increases and stock-price declines produced a rising dividend yield for IBM stock. At the stock’s
peak in 1987, dividend yield was 2.50%. In contrast, IBM stock at year-end 1991 was yielding
5.44%.
Share-Repurchase Programs
The repurchase of shares on the open market by U.S. companies began to gain popularity
in the mid-1970s when the Nixon Administration imposed limits on the payment of cash
dividends. The programs entailed a publicly held company’s buying back some of its shares from
current stockholders, generally through one of three methods. The first and most common
method, open-market acquisition, accounted for approximately two-thirds of repurchased shares
in 1991. The second method was a general tender offer in which the company offered to
purchase a fixed amount of shares at a set price. The last method was to repurchase shares
through direct negotiation with a major shareholder.
IBM’s first formal repurchase program began in 1974 when the rapid expansion of the
1960s slowed and the company found itself with more cash than it needed. The most recent
program had been approved by the board of directors in 1989. The board authorized the
repurchase of $5 billion worth of shares, with the timing and size of the purchases to be dictated
by market conditions. As of December 1991, the company had purchased $724 million worth of
stock, of which $196 million had occurred during 1991. The shares repurchased through the
repurchase program had been retired and removed from IBM’s books.
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In addition to the formal stock-repurchase program, IBM also repurchased shares to

satisfy the demand of its Employee Stock Purchase Program (ESPP). The ESPP allowed
employees to allocate up to 10% of their salaries for the purchase of IBM shares at 85% of the
stock’s market price with IBM absorbing the other 15%. The market price was computed as the
average closing price of IBM stock over the pay period. Since IBM employees were paid
bimonthly, the market price was computed over approximately a two-week period.
Both IBM and the employees benefited from the ESPP. The corporation benefited from
employees’ enhanced concerns for IBM’s overall performance as a result of their owning an
equity stake. The employees benefited by having a convenient method of investing in the market
and by having the opportunity to buy IBM stock in the company at a significant discount from its
current market price.
Rather than issue new shares, IBM met the ESPP demand by repurchasing shares on the
open market every month. In 1991, the company had repurchased just over 7 million shares at a
total cost of $744 million, $119 million of which was paid by IBM. Unlike the formal repurchase
program, ESPP shares were not retired but were instead held as “treasury stock” to be reissued
later as needed. Future repurchases for ESPP demand was expected to be similar to that in 1991
for a couple of reasons. First, salary levels were rising at approximately the same rate as the pace
at which the number of IBM employees was decreasing, which resulted in a static total-company
salary figure. Second, the allocation percentages chosen by employees tended to remain constant
over time.
The SEC Decision
Companies with options listed on the Chicago Board Options Exchange (CBOE) had
historically refrained from writing put options on their own shares because of legal uncertainties
in several areas. Concern for the legality of “issuer put writing” centered on various rules and
regulations in the Securities Act of 1933 and the Securities Exchange Act of 1934 regarding
manipulation of stock prices and registration of securities by issuers. In September of 1990,
however, the lawyers for the CBOE sent a letter to the SEC requesting that the Commission’s
Division of Corporation Finance not recommend enforcement action against issuer put writing.
The letter outlined the legal basis for such a decision and proposed measures to ensure that
issuers writing put options would be within the limits of securities law.
In February 1991, the SEC responded with the issuance of a “no-action” letter stating that
the Commission would “not take enforcement action... with respect to the writing by Issuers of
standardized puts and with respect to the acquisition by Issuers of their own securities upon
exercise of such puts.”2 The SEC’s response was contingent on the adherence by issuers to the
regulatory measures proposed in the CBOE’s original request. These regulations included:
2
Letter from Abigail Arms, deputy chief counsel of the SEC’s Division of Corporation Finance, and Nancy
Sanow, assistant director of the SEC’s Division of Market Regulation, to Andrew Klein of Schiff, Hardin & Waite,
attorney for the CBOE.
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• Issuer-written put options had to be “out of the money” (with exercise prices below the
current market price of the underlying stock).
• Puts were only to be written to the extent that, on the day of issuance, purchases of the
underlying stock by the issuer if the puts were immediately exercised, together with any
other purchases of common stock by the issuer on that day, would not exceed 25% of the
company’s daily trading volume.
Additionally, the CBOE required that issuers adhere to the pertinent position-limit rules
of the exchange. In the case of put options, the rules limited an issuer to a maximum of 8,000
outstanding contracts, which represented the equivalent of 800,000 shares.
The writing of put options by issuers of common stock was seen as particularly useful to
companies practicing significant share-repurchase programs. By writing puts, the cost of the
“buy-backs” could be reduced by the premium income received from the sale of the options. For
example, if a company sold puts with a strike price of $55 for $2 each when its shares were
trading at $60 per share and if the stock price did not drop below $55, the options would expire
unexercised and the company would realize the $2 premium as income. In fact, even if the price
fell to $54 by the expiration date of the options, the company would still profit. In this case, the
company would be obligated to buy shares from the put holders at $55 per share, $1 higher than
the current market price, but it would still have paid only $53 per share once the $2 premium was
included. The down side of issuer put writing occurred whenever the share price dropped
significantly. If, in the example, the company’s stock dropped to $50 by the expiration date, the
company would be obligated to buy shares from the put holders at $55 even though it could have
been paying $50 in the open market. In this case, the $2 premium income would not be sufficient
to offset the loss of the put option, and the company would have been better off not issuing the
puts.
For accounting purposes, issuer-sold puts were treated as adjustments to equity. When an
issuer sold a put, the premium income was added to stockholders’ equity, while the amount of
the obligation, equal to the strike price, was subtracted from equity and placed in a temporary
equity account. If the option expired worthless, the temporary equity would be returned to
stockholders’ equity. If the put was exercised, however, the temporary equity would be added to
the company’s treasury stock account. The net amount of the addition would equal the strike
price less the premium income already received.
Based on the long-standing exemption for corporations from taxation on any dealings in
their own stock, neither the receipt of the premium income nor the purchase of treasury stock
upon exercise of the put would have any tax consequences.
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IBM’s Repurchase Alternatives
Jesse Greene knew that IBM would continue to have significant share-acquisition needs
for the foreseeable future. In 1991 alone, the company had bought back over 9.16 million of its
own shares worth approximately $940 million. Of the total number of shares purchased, 2.1
million had been for the corporate buy-back program and 7.0 million had gone into the ESPP.
The company’s repurchase requirements for the next several years were expected to be similar.
Exhibit 4 contains details of IBM’s 1991 share repurchases.
With the additional possibility of writing put options on IBM stock, Greene now had
three basic alternatives to fulfill the company’s demand for its own shares in 1992. The first and
most straightforward alternative was simply to buy the necessary shares all at once early in the
year. The company would then contribute shares to the ESPP as needed throughout the year. In
addition to the certainty this alternative provided IBM, the company could also benefit from a
1.64% “positive carry” on the shares. (Positive carry referred to the spread between the
commercial paper rate of 3.80% and the current dividend yield of 5.44% on IBM stock. Because
IBM would issue commercial paper to fund the stock purchase, the company would net 1.64%
just from holding the shares.) The gain to IBM was even larger on an after-tax basis, because the
interest paid on the commercial paper was tax deductible whereas the dividends were paid from
after-tax earnings.
A second alternative was to purchase only part of the expected 1992 demand near the
beginning of the year and spread the remaining purchases over the rest of the year. Purchases
could be made semi-annually, quarterly, or even daily if desired. This alternative would also
allow the company to benefit from the positive carry, although to a lesser extent than if it had
purchased all the shares at the beginning of the year. Additionally, by spreading the purchases
over the year, IBM could take advantage of drops in the share price. On the other hand, if the
stock price rose over the year, this strategy could be the most expensive alternative.
Finally, the company could begin a program of put-option writing to supplement one of
the other alternatives. Demand in the market for put options on IBM shares was consistently
heavy because of the stock’s important role in the Dow Jones Index and other market indexes.
Because of this strong demand, Greene was certain that the company would have no trouble
finding enough buyers to meet the CBOE’s position limit of 8,000 outstanding contracts.
The report on Greene’s desk outlined the benefits and drawbacks of using a put-option
strategy in combination with one of the other two buy-back alternatives. For Greene, the most
obvious benefit was the millions of dollars the company could receive in premiums by selling the
puts. This income would depend directly on his decision regarding how many options to issue, if
any. The drawback centered on the results of a fall in the price of IBM stock and the resulting
liability to IBM. After reading the report, Greene decided to estimate how profitable the put-
writing strategy could be for the company. He first assumed that IBM would follow a strategy of
writing puts every month to cover its monthly ESPP requirements. For example, the expected
ESPP demand for February 1992 was about 600,000 shares. Because IBM had closed at $95.625
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the previous day, the CBOE’s February 90 put satisfied the SEC’s out-of-the-money requirement
(see Exhibit 5 for information on CBOE options). Thus, the option strategy would be to sell
6,000 February 90 puts immediately at $112.50 per contract.3 When the puts expired 26 days
later on February 17, the company would purchase 600,000 IBM shares at the prevailing market
price. So long as IBM’s price was above $90, the puts would expire worthless and IBM would
pocket a $675,000 gain ($112.50/contract × 6,000 contracts) from selling the options. The
strategy would then be repeated for each successive month in the year.
As shown in Exhibit 6, however, the price of IBM stock had fluctuated considerably over
the past year and the price could fall below the breakeven price of $88.875 ($90 strike price less
$1.125 premium). The inherent uncertainty of IBM’s stock price raised several questions for
Greene. As he saw it, the basic question was whether there was a significant probability of IBM
stock falling below the breakeven point. Then, even if the probability were significant, could
active management of the option position minimize the risk? For example, if two weeks prior to
maturity, the stock price had fallen to $92, the puts could be repurchased before the stock had a
chance of falling below the breakeven price. In addition, the breakeven point could be managed
through the choice of the put’s strike price. If the February 85s were sold, the breakeven price as
well as the probability of reaching the breakeven would be much lower than if the February 90s
were sold. Of course, the premiums received from selling the 85 put would be only $50 per
contract, as compared with the $112.50 received from selling the 90 put.
Greene decided that his first objective would be to estimate the probability of losing
money on the put-writing strategy for February. If the probability was not too high for February,
then the basic strategy should be viable for the whole year and he could turn his attention to the
details of how to structure and implement the plan.
Even if the strategy appeared profitable, however, he knew that there were a host of other
issues to consider before he could recommend it to the treasurer. For example, the option-selling
strategy would be the first “product” offered by the Treasury Department since its inception.
Because the operating units were busy making the transition to becoming autonomous units in
the reorganized company, it made sense for Treasury to do the same by creating its own
profitable products. It might prove difficult to convince the treasurer to try other products if the
first one was not profitable or if it created an image problem for the company. Since options
were generally viewed as a speculative instrument, selling puts might create real concern among
IBM’s shareholders and employees. IBM had the reputation of being a conservatively financed
and conservatively managed company. That conservative image might prove incompatible with
the company becoming actively involved in the option market. If stock analysts interpreted the
strategy negatively, it was conceivable that announcing the new strategy might even result in
IBM’s stock price falling. Thus, Jesse Greene felt that before he could recommend the option
strategy to the treasurer, he would have to be prepared to show how the plan would be profitable
without creating an image problem for IBM.
3
Option prices were quoted on the basis of 1 common share. Options were sold, however, on the basis of 100
shares per contract. Therefore, the February 90 put, which was quoted as $1.125 per share, would actually be sold as
$112½ for each 100-share contract.
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Exhibit 1
ISSUER PUT OPTIONS
Balance Sheet (1990–91)
($ millions)
1991 1990
Cash & cash equivalents 3,945 3,853

Marketable securities 1,206 698
Notes/accounts receivable, net 16,882 16,962
Sales-type lease receivables 7,435 5,682
Inventories 9,844 10,108
Prepaid expenses & other current assets 1,657 1,617
Total current assets 40,969 38,920
Plant, machines, & other property 55,678 53,659

Less accumulated depreciation (28,100) (26,418)
Net property, plant, & equipment (PP&E) 27,578 27,241
Software less accumulated amortization 4,483 4,099

Investments & sundry assets 19,443 17,308
Total investments & other assets 23,926 21,407
Total assets 92,473 87,568
Short-term debt 13,716 7,602

Accounts payable 5,956 6,526
Deferred income 2,879 2,506
Other expenses & liabilities 11,703 8,642
Total current liabilities 33,624 25,276
Long-term debt 13,231 11,943
Other liabilities 6,685 3,656
Deferred income taxes 1,927 3,861
Total liabilities 55,467 44,736
Capital stock, par value $1.25 6,531 6,357

Retained earnings 27,339 33,234
Translation adjustments 3,167 3,266
Treasury stock, at cost (31) (25)
Total stockholders’ equity 37,006 42,832
Total liabilities & equity 92,473 87,568
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Exhibit 2
ISSUER PUT OPTIONS
Income Statement (1990–91)
($ millions)
1991 1990
Sales 37,093 43,959

Software 10,524 9,952
Maintenance 7,414 7,198
Services 5,582 4,124
Rentals & financing 4,179 3,785
Total revenues 64,792 69,018
Sales 18,949 19,401

Software 3,888 3,126
Maintenance 3,379 3,302
Services 4,531 3,315
Rentals & financing 1,727 1,579
Total costs 32,474 30,723
Gross profit 32,318 38,295

Selling, general & administrative 24,732 20,709
Research, development, & engineering 6,644 6,554
Total operating expenses 31,376 27,263
Operating income 942 11,032

Other income (principally interest) 602 495
Interest expense (1,423) (1,324)
Income before taxes 121 10,203
Provision for income taxes (685) (4,183)

Net earnings before accounting change (564) 6,020
Effect of accounting change (2,263) 0
Net earnings (2,827) 6,020
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Exhibit 3
ISSUER PUT OPTIONS
Five-Year Comparison of Selected Financial Data
($ millions)
1991 1990 1989 1988 1987
Revenues 64,792 69,018 62,710 59,681 55,256

Net earnings before accounting change (564) 6,020 3,758 5,491 5,258
Effect of accounting change (2,263) 0 0 315 0
Net earnings (2,827) 6,020 3,758 5,806 5,258
Dividends paid per share 4.84 4.84 4.73 4.40 4.40
Return on stockholders’ equity N.Av. 14.8% 9.6% 14.9% 14.5%
1991 1990 1989 1988 1987
Total assets 92,473 87,568 77,734 73,037 70,029

Net PP&E 27,758 27,241 24,943 23,426 22,967
Working capital 7,345 13,644 14,175 17,956 18,430
Long-term debt 13,231 11,943 10,825 8,518 7,108
Stockholders’ equity 37,006 42,832 38,509 39,509 38,263
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Exhibit 4
ISSUER PUT OPTIONS
Share-Repurchase Information (1991)
CORPORATE BUY- ESPP TOTALS

BACK
No. of Value No. of Value No. of Value

Shares ($ millions) Shares ($ millions) Shares ($ millions)
(000s) (000s) (000s)
Jan. 0 0 278 31 278 31

Feb. 0 0 549 67 549 67
Mar. 0 0 477 58 477 58
Apr. 0 0 583 68 583 68
May 57 6 614 68 671 74
Jun. 437 44 573 61 1,010 105
Jul. 0 0 639 66 639 66
Aug. 482 46 588 59 1,070 105
Sep. 0 0 550 56 550 56
Oct. 0 0 574 57 574 57
Nov. 0 0 591 59 591 59
Dec. 1,148 100 1,020 95 2,168 195
Total 2,124 196 7,036 745 9,160 941
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Exhibit 5
ISSUER PUT OPTIONS
Option Premiums and Market Data1
Option & Strike

NY Close Price Calls—Last Puts—Last
Feb. Mar. Apr. Feb. Mar. Apr.
IBM 85 10 s 11 ½ ½ s 1½
95 ⅝ 90 6 6⅞ 7¾ 1⅛ 2 2⅞
95 ⅝ 95 2⅝ 3¾ 4⅝ 3 4 4¾
95 ⅝ 100 1 1⅞ 2¾ 6½ 8 8⅜
_______________
T-bill rates (%) 3.51 3.64 3.85 3.51 3.64 3.85

Days to expiration 26 54 89 26 54 89
r = not traded; s = no option.
1
Prices, from January 22, 1992, issue of Wall Street Journal, are rounded up to nearest $⅛.
-13- UV0608
Exhibit 6
ISSUER PUT OPTIONS
Weekly Stock Prices and Returns (1991)
Week
Ending High Low Close Return
01/04/91 $113.875 $111.875 $112.125 -0.77%

01/11/91 111.875 106.750 108.125 -3.57
01/18/91 118.250 105.500 117.625 8.79
01/25/91 122.625 116.625 122.625 4.25
02/01/91 127.625 122.750 126.875 3.47
02/08/91 131.000 125.625 129.500 2.07
02/15/91 137.750 129.625 137.375 6.08
02/22/91 139.750 132.625 133.250 -3.00
03/01/91 135.125 127.500 131.000 -1.69
03/08/91 135.000 129.875 131.250 0.19
03/15/91 130.750 126.250 126.625 -3.52
03/22/91 128.125 111.000 111.625 -11.85
03/29/91 114.625 111.750 113.875 2.02
04/05/91 114.750 111.125 112.625 -1.10
04/12/91 113.500 108.125 108.500 -3.66
04/19/91 110.750 109.000 109.500 0.92
04/26/91 109.375 107.250 107.375 -1.94
05/03/91 107.875 102.000 103.625 -3.49
05/10/91 106.000 101.750 103.375 -0.24
05/17/91 106.250 101.250 103.750 0.36
05/24/91 105.125 100.500 105.000 1.20
05/31/91 106.500 103.625 106.125 1.07
06/07/91 107.375 101.375 102.000 -3.89
06/14/91 103.500 99.875 100.375 -1.59
06/21/91 101.250 97.125 99.625 -0.75
06/28/91 99.625 96.625 97.125 -2.51
07/05/91 99.375 97.375 98.625 1.54
07/12/91 100.875 97.750 99.375 0.76
07/19/91 100.875 95.625 100.500 1.13
07/26/91 103.000 100.000 100.500 0.00
08/02/91 $102.125 $100.250 $100.250 -0.25%
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Exhibit 6 (continued)
Week
Ending High Low Close Return
08/09/91 $101.250 $98.750 $98.875 1.37%

08/16/91 99.875 96.500 96.500 -2.40
08/23/91 96.375 92.000 94.875 -1.68
08/30/91 97.125 94.000 96.875 2.11
09/06/91 99.625 97.625 99.375 2.58
09/13/91 104.000 99.250 102.875 3.52
09/20/91 106.375 102.875 104.250 1.34
09/27/91 105.875 102.000 102.250 -1.92
10/04/91 104.250 98.125 98.250 -3.91
10/11/91 100.500 96.750 99.875 1.65
10/18/91 104.750 99.125 100.375 0.50
10/25/91 101.000 97.250 98.000 -2.37
11/01/91 100.375 97.500 98.375 0.38
11/08/91 101.375 96.375 100.250 1.91
11/15/91 100.750 96.000 96.250 -3.99
11/22/91 97.750 94.625 94.750 -1.56
11/29/91 98.125 92.375 92.500 -2.37
12/06/91 92.375 89.000 89.000 -3.78
12/13/91 89.750 83.500 88.000 -1.12
12/20/91 88.000 84.500 85.750 -2.56
12/27/91 90.000 85.500 89.375 4.23
01/03/92 91.125 88.875 90.375 1.12
01/10/92 95.000 90.625 90.875 0.55
01/17/92 $98.125 $89.750 $96.375 6.05%
Standard deviation of weekly returns (55 weeks) 3.22%
3-month Treasury-bill yield: 3.90%
Historical market premium over Treasury bills8.60%
IBM stock beta (Value Line) 0.72

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UV0608

INTERNATIONAL BUSINESS MACHINES CORPORATION:

In addition to the formal stock-repurchase program, IBM also repurchased shares to

The SEC Decision

IBM’s Repurchase Alternatives

Cash & cash equivalents 3,945 3,853

Plant, machines, & other property 55,678 53,659

Software less accumulated amortization 4,483 4,099

Total assets 92,473 87,568

Short-term debt 13,716 7,602

Capital stock, par value $1.25 6,531 6,357

Total liabilities & equity 92,473 87,568

Sales 37,093 43,959

Sales 18,949 19,401

Gross profit 32,318 38,295

Operating income 942 11,032

Provision for income taxes (685) (4,183)

1991 1990 1989 1988 1987

Revenues 64,792 69,018 62,710 59,681 55,256

1991 1990 1989 1988 1987

Total assets 92,473 87,568 77,734 73,037 70,029

CORPORATE BUY- ESPP TOTALS

No. of Value No. of Value No. of Value

Jan. 0 0 278 31 278 31

Total 2,124 196 7,036 745 9,160 941

Option & Strike

Feb. Mar. Apr. Feb. Mar. Apr.

T-bill rates (%) 3.51 3.64 3.85 3.51 3.64 3.85

r = not traded; s = no option.

01/04/91 $113.875 $111.875 $112.125 -0.77%

08/09/91 $101.250 $98.750 $98.875 1.37%

Standard deviation of weekly returns (55 weeks) 3.22%

3-month Treasury-bill yield: 3.90%

Historical market premium over Treasury bills8.60%

IBM stock beta (Value Line) 0.72

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