UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: July 19, 1999
(Date of earliest event reported)
INTERNATIONAL BUSINESS MACHINES CORPORATION
(Exact name of registrant as specified in its charter)
New York 1-2360 13-0871985
(State of Incorporation) (Commission (IRS employer
File Number) Identification No.)
ARMONK, NEW YORK 10504
(Address of principal executive offices) (Zip Code)
914-499-1900
(Registrant's telephone number)
Item 5. Other Events
The registrant's press release dated July 19, 1999, regarding its
financial results for the period ended June 30, 1999, including unaudited
consolidated financial statements for the period ended June 30, 1999, are
attached.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
Date: July 19, 1999
By: /s/ Mark Loughridge
------------------------------
(Mark Loughridge)
Vice President and Controller
IBM Announces Second-Quarter 1999 Results
July 19, 1999
IBM today announced second-quarter 1999 diluted earnings per common share of
$1.28 compared with diluted earnings per common share of $.75 in the second
quarter of last year. Second-quarter 1999 revenues grew 16 percent (16 percent
at constant currency) to $21.9 billion.
Second-quarter 1999 net income totaled $2.4 billion compared with $1.5 billion
in the second quarter of 1998. These results include an after-tax benefit of
approximately $700 million, or $.37 per diluted common share, resulting from a
number of actions that occurred during the quarter. Specifically, IBM closed the
sale of the company's Global Network in several key geographic areas. The
company also took certain actions intended to improve the long-term
competitiveness of the company's microelectronics and storage businesses. In
addition, IBM implemented an accounting change to shorten the depreciable lives
of personal computers used within the company to three years from five years.
Louis V. Gerstner, Jr., IBM chairman and chief executive officer, said: "We
continued to build on our strategic priorities in the second quarter. These
priorities are focused on three areas: services, software, and the sale of our
leadership technology to the marketplace. Our services business continued to
show excellent results in the quarter. Our software unit once again turned in a
very good performance, with particularly strong results from our database,
transaction processing and Tivoli products. Although we saw price pressures in
some areas of the technology segment, our technology business nevertheless
performed well overall in a difficult environment.
"The actions we're taking in our microelectronics and storage areas are intended
to strengthen our technology segment substantially over the long term. With
these actions, we are well down the path of exiting the high-volume
manufacturing of DRAM chips, while shifting our resources toward the
faster-growth, higher-margin custom chip area. In addition, we are taking
various steps to integrate development and manufacturing activities in our hard
disk drive business while reducing expenses. These steps will not only improve
the competitiveness of our technology segment but will further strengthen IBM's
overall business portfolio.
"In summary, our results were strong worldwide," Mr. Gerstner said. "In addition
to the strength in our services, software and technology areas, we once again
saw very good growth in our System/390 servers, with shipments of System/390
computing power more than doubling year over year. There was a marked
improvement in the quarter in our RS/6000 business. Our PC business continued
its year-over-year improvement. In short, we maintained our momentum in the
second quarter while taking important steps to further strengthen our portfolio
over the long term."
Second-quarter revenues from the Americas totaled $10.0 billion, an increase of
16 percent (18 percent at constant currency) compared with the same period of
last year. Revenues from Europe/Middle
East/Africa were $6.4 billion, up 14 percent (17 percent at constant currency).
Asia-Pacific revenues grew 19 percent (9 percent at constant currency) to $3.6
billion. OEM revenues totaled $1.9 billion, a 21 percent increase (20 percent at
constant currency) compared with the second quarter of 1998.
Hardware revenues were $9.4 billion in the second quarter, an increase of 22
percent (21 percent at constant currency) compared with last year's second
quarter. Personal computer, RS/6000 and System/390 server revenues increased.
AS/400 revenues declined. Overall storage and microelectronics revenues grew in
the quarter.
Revenues from IBM Global Services, including maintenance, grew 15 percent (15
percent at constant currency) in the second quarter to $8.0 billion. Excluding
maintenance, Global Services revenues increased 19 percent (18 percent at
constant currency) to $6.7 billion. IBM signed $9.5 billion in services
contracts in the quarter and concluded the quarter with a total services
contract backlog of approximately $55.2 billion.
Software revenues increased 9 percent (10 percent at constant currency) in the
second quarter to $3.1 billion, with continuing strong results from the
company's Universal Database, transaction processing, Lotus Notes and Tivoli
systems management products. The software gross margin improved 2.5 points year
over year.
Revenues from Global Financing increased 4 percent (5 percent at constant
currency) in the second quarter to $743 million.
Revenues from the Enterprise Investments/Other area, which includes custom
applications and other products designed to meet specialized customer
requirements, increased 19 percent (19 percent at constant currency) year over
year to $669 million.
The company's overall gross profit margin was 37.5 percent in the second quarter
compared with 38.0 percent in the same period of 1998.
The effect of the second-quarter actions is included in the company's expense
results in the second quarter. Second-quarter expenses, including the actions
totaling $1.6 billion, were $4.2 billion, generating a 7.8-point improvement in
the company's expense-to-revenue ratio. The actions contributed to a 7.3-point
improvement in the E/R ratio.
IBM's tax rate in the second quarter, including the second-quarter actions, was
40.8 percent compared with 30.3 percent in the second quarter of last year. The
company's tax rate increased by approximately 11 points in the quarter,
principally due to the second-quarter actions.
IBM spent approximately $1.6 billion on share repurchases in the second quarter.
After adjusting for a two-for-one stock split that became effective in May of
this year, the average number of shares outstanding in the quarter was 1,812
million compared with 1,879
million in the second quarter of 1998. There were 1,809 million common shares
outstanding at June 30, 1999.
Debt in support of operations, excluding global financing, increased $482
million from year-end 1998 to $2.1 billion, resulting in a
debt-to-capitalization ratio of 13 percent. Global financing debt declined $852
million from the end of 1998 to a total of $26.9 billion, resulting in a
debt-to-equity ratio of 6.0 to 1.
Net income for the six months ended June 30, 1999 were $3.9 billion, or $2.05
per diluted common share, compared with net income of $2.5 billion, or $1.28 per
diluted common share, in the year-earlier period. Revenues for the six months
ended June 30, 1999 were $42.2 billion, an increase of 16 percent (15 percent at
constant currency) compared with $36.4 billion for the first six months of 1998.
IBM's net income and earnings per share results for the six-month period include
the effect of the second-quarter actions (an after-tax benefit of approximately
$700 million, or $.37 per diluted common share).
Second-Quarter Actions
The second-quarter actions include:
The closure of the Global Network sale in the United States, Japan, the United
Kingdom and Ireland. The company recorded an after-tax gain of approximately
$2.1 billion, or $1.12 per diluted common share. The company expects the sale of
the Global Network to be substantially completed in the third quarter.
A shift of development and manufacturing resources from DRAM chips toward
higher-growth, higher-margin custom logic chips. IBM's facility in Essonnes,
France will convert to custom logic manufacturing over an 18-month period
through a joint venture established in the second quarter with Infineon
Technologies, a subsidiary of Siemens. The company also recorded a write-down
related to excess DRAM test equipment. As a result, the company took an
after-tax charge of approximately $770 million, or $.41 per diluted common
share.
The assumption, by the Toshiba Corporation, of IBM's 50 percent interest in the
Dominion Semiconductor Company, a DRAM manufacturing operation, effective
December 31, 2000. As a result, the company wrote off its investment in
Dominion, resulting in an after-tax charge of approximately $104 million, or
$.05 per diluted common share.
The assumption by IBM of full ownership of a joint venture, MiCRUS, with Cirrus
Logic, Inc., which produces CMOS-based logic components. During the second
quarter, Cirrus Logic notified IBM that it wished to renegotiate its obligation
under its partnership agreement. The company recognized an after-tax charge of
approximately $92 million, or $.05 per diluted common share, as a result.
Within the storage area, IBM took several actions to reduce expenses and
integrate its HDD server line into a common low-cost design platform. The
company recorded an after-tax charge of approximately $208 million, or $.11 per
diluted common share.
The company also implemented an accounting change for the depreciable lives of
personal computers used within IBM. Under a new asset management strategy being
implemented by the company, PCs used within IBM will be replaced, on average,
every three years. The company currently, on average, depreciates PCs used
internally over five years. This change in depreciable lives better reflects the
expected useful life of PCs within IBM. As a result, the company recorded an
after-tax charge of approximately $241 million, or $.13 per diluted common
share.
Forward-Looking and Cautionary Statements
Except for the historical information and discussions contained herein,
statements contained in this release may constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
These statements involve a number of risks, uncertainties and other factors that
could cause actual results to differ materially, as discussed in the company's
filings with the Securities and Exchange Commission.
Financial Results Attached
INTERNATIONAL BUSINESS MACHINES CORPORATION
COMPARATIVE FINANCIAL RESULTS
(Unaudited; Dollars in millions except per share amounts)
Three Months Six Months
Ended June 30, Ended June 30,
Percent Percent
1999 1998 Change 1999 1998 Change
---- ---- ------ ---- ---- ------
REVENUE
Hardware $ 9,379 $ 7,714 21.6% $17,963 $15,032 19.4%
Gross margin 28.6% 30.7% 27.9% 29.7%
Global Services 7,988 6,969 14.6% 15,538 13,310 16.7%
Gross margin 28.4% 27.3% 27.4% 27.2%
Software 3,126 2,866 9.1% 6,046 5,510 9.7%
Gross margin 83.4% 80.9% 82.2% 80.2%
Global Financing 743 712 4.3% 1,448 1,431 1.2%
Gross margin 55.3% 47.2% 55.6% 47.2%
Enterprise Investments/
Other 669 562 19.1% 1,227 1,158 6.0%
Gross margin 38.9% 39.6% 36.0% 36.2%
TOTAL REVENUE 21,905 18,823 16.4% 42,222 36,441 15.9%
GROSS PROFIT 8,224 7,146 15.1% 15,482 13,596 13.9%
Gross margin 37.5% 38.0% 36.7% 37.3%
OPERATING EXPENSES
S,G&A * 2,846 3,812 -25.3% 6,783 7,531 -9.9%
% of revenue 13.0% 20.3% 16.1% 20.7%
R,D&E 1,293 1,220 5.9% 2,474 2,399 3.1%
% of revenue 5.9% 6.5% 5.9% 6.6%
OPERATING INCOME * 4,085 2,114 93.3% 6,225 3,666 69.8%
Other income 155 130 19.4% 289 280 3.2%
Interest expense 197 161 23.0% 371 340 9.3%
INCOME BEFORE
INCOME TAXES * 4,043 2,083 94.1% 6,143 3,606 70.3%
Pre-tax margin 18.4% 11.1% 14.5% 9.9%
Provision for
income taxes * 1,652 631 161.9% 2,282 1,118 104.1%
Effective tax
rate 40.8% 30.3% 37.1% 31.0%
NET INCOME * $ 2,391 $ 1,452 64.6% $ 3,861 $ 2,488 55.2%
Net margin 10.9% 7.7% 9.1% 6.8%
Preferred stock
dividends 5 5 10 10
NET INCOME
APPLICABLE TO COMMON
SHAREHOLDERS * $ 2,386 $ 1,447 64.8% $ 3,851 $ 2,478 55.4%
======= ======= ======= =======
EARNINGS PER
SHARE OF COMMON
STOCK - ASSUMING
DILUTION * $ 1.28 $ 0.75 70.7% $ 2.05 $ 1.28 60.2%
======= ======= ======= =======
EARNINGS PER
SHARE OF COMMON
STOCK - BASIC $ 1.32 $ 0.77 71.4% $ 2.12 $ 1.31 61.8%
======= ======= ======= =======
AVERAGE NUMBER OF
COMMON SHARES OUT-
STANDING (M's)
DILUTED 1,870.6 1,928.7 1,876.6 1,939.0
BASIC 1,812.1 1,879.2 1,818.0 1,889.8
* Second quarter and six month 1999 results include a pre-tax benefit of $1.6
billion (after-tax benefit of $687 million, or $.37 per diluted common share)
due to a gain from the sale of the IBM Global Network, charges for actions
related to microelectronics and storage businesses, as well as an accounting
change in PC depreciable lives.
Note: All references to the average number of common shares and per common share
data for all periods presented have been adjusted to reflect a 2-for-1 stock
split of the common stock effective May 10, 1999.
INTERNATIONAL BUSINESS MACHINES CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Unaudited; Dollars in millions)
At At
June 30, December 31, Percent
1999 1998 Change
-------- ------------ -------
ASSETS
Cash, cash equivalents,
and marketable securities $ 7,241 $ 5,768 25.5%
Receivables - net, inventories,
and prepaid expenses 36,211 36,592 -1.0%
Plant, rental machines,
and other property - net 17,253 19,631 -12.1%
Investments and other assets 22,642 24,109 -6.1%
------- -------
TOTAL ASSETS $83,347 $86,100 -3.2%
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt $14,713 $13,905 5.8%
Long-term debt 14,330 15,508 -7.6%
------- -------
Total debt 29,043 29,413 -1.3%
Accounts payable, taxes,
and accruals 21,248 22,922 -7.3%
Other liabilities 13,898 14,332 -3.0%
------- -------
TOTAL LIABILITIES 64,189 66,667 -3.7%
STOCKHOLDERS' EQUITY 19,158 19,433 -1.4%
------- -------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $83,347 $86,100 -3.2%
======= =======
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
SECOND QUARTER 1999
-------------------------------------------------------
(Dollars in millions) Pre-tax
-------- Revenue -------- Pre-tax Income
External Internal Total Income Margin
-------- -------- -------- -------- ------
SEGMENTS
Technology $ 3,062 $ 1,013 $ 4,075 $ 130 3.2%
% change 10.2% -8.0% 5.1% -53.7%
Personal Systems 3,873 7 3,880 (153) -3.9%
% change 50.2% 0.0% 50.1% 64.9%
Server 2,349 92 2,441 516 21.1%
% change 3.3% -6.1% 3.0% -6.4%
Global Services 7,988 628 8,616 1,137 13.2%
% change 14.6% -0.6% 13.4% 19.8%
Software 3,126 182 3,308 700 21.2%
% change 9.1% 4.0% 8.8% 11.8%
Global Financing 764 198 962 328 34.1%
% change 3.1% 19.3% 6.1% 13.5%
Enterprise Investments 661 3 664 (101) -15.2%
% change 16.8% -76.9% 14.7% 37.3%
TOTAL SEGMENTS 21,823 2,123 23,946 2,557 10.7%
% change 16.3% -3.1% 14.2% 21.8%
Eliminations / Other 82 (2,123) (2,041) 1,486*
TOTAL IBM $ 21,905 $ 0 $ 21,905 $ 4,043 18.4%
% change 16.4% 16.4% 94.1%
SECOND QUARTER 1998
-------------------------------------------------------
(Dollars in millions) Pre-tax
-------- Revenue -------- Pre-tax Income
External Internal Total Income Margin
-------- -------- -------- -------- ------
SEGMENTS
Technology $ 2,778 $ 1,101 $ 3,879 $ 281 7.2%
Personal Systems 2,578 7 2,585 (436) -16.9%
Server 2,273 98 2,371 551 23.2%
Global Services 6,969 632 7,601 949 12.5%
Software 2,866 175 3,041 626 20.6%
Global Financing 741 166 907 289 31.9%
Enterprise Investments 566 13 579 (161) -27.8%
TOTAL SEGMENTS 18,771 2,192 20,963 2,099 10.0%
Eliminations / Other 52 (2,192) (2,140) (16)
TOTAL IBM $ 18,823 $ 0 $ 18,823 $ 2,083 11.1%
* Pre-tax income includes a benefit of $1.6 billion due to a gain from the sale
of the IBM Global Network, charges for actions related to microelectronics and
storage businesses, as well as an accounting change in PC depreciable lives.
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
SIX MONTHS 1999
-------------------------------------------------------
(Dollars in millions) Pre-tax
-------- Revenue -------- Pre-tax Income
External Internal Total Income Margin
-------- -------- -------- -------- ------
SEGMENTS
Technology $ 5,932 $ 1,911 $ 7,843 $ 200 2.6%
% change 7.0% -9.3% 2.5% -61.5%
Personal Systems 7,462 14 7,476 (242) -3.2%
% change 49.5% 7.7% 49.4% 72.9%
Server 4,422 165 4,587 1,014 22.1%
% change 0.3% -7.3% 0.0% -4.2%
Global Services 15,538 1,297 16,835 2,110 12.5%
% change 16.7% 0.5% 15.3% 25.9%
Software 6,046 393 6,439 1,357 21.1%
% change 9.7% 8.9% 9.7% 11.1%
Global Financing 1,488 405 1,893 625 33.0%
% change 1.5% 23.9% 5.6% 10.0%
Enterprise Investments 1,210 14 1,224 (173) -14.1%
% change 14.4% -41.7% 13.1% 44.4%
TOTAL SEGMENTS 42,098 4,199 46,297 4,891 10.6%
% change 16.0% -2.3% 14.1% 27.4%
Eliminations / Other 124 (4,199) (4,075) 1,252*
TOTAL IBM $ 42,222 $ 0 $ 42,222 $ 6,143 14.5%
% change 15.9% 15.9% 70.3%
SIX MONTHS 1998
-------------------------------------------------------
(Dollars in millions) Pre-tax
-------- Revenue -------- Pre-tax Income
External Internal Total Income Margin
-------- -------- -------- -------- ------
SEGMENTS
Technology $ 5,545 $ 2,106 $ 7,651 $ 519 6.8%
Personal Systems 4,992 13 5,005 (894) -17.9%
Server 4,408 178 4,586 1,059 23.1%
Global Services 13,310 1,291 14,601 1,676 11.5%
Software 5,510 361 5,871 1,221 20.8%
Global Financing 1,466 327 1,793 568 31.7%
Enterprise Investments 1,058 24 1,082 (311) -28.7%
TOTAL SEGMENTS 36,289 4,300 40,589 3,838 9.4%
Eliminations / Other 152 (4,300) (4,148) (232)
TOTAL IBM $ 36,441 $ 0 $ 36,441 $ 3,606 9.9%
* Pre-tax income includes a benefit of $1.6 billion due to a gain from the sale
of the IBM Global Network, charges for actions related to microelectronics and
storage businesses, as well as an accounting change in PC depreciable lives.