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: January 20, 1998
(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 January 20, 1998, regarding its
financial results for the period ended December 30, 1997, including ended
unaudited consolidated financial statements for the period ended December 30,
1997, 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.
INTERNATIONAL BUSINESS MACHINES CORPORATION
(Registrant)
Date: January 20, 1998
By: John R. Joyce
-----------------------------
(John R. Joyce)
Vice President and Controller
IBM Announces Fourth Quarter, Full-Year 1997 Results;
Revenues, Earnings Per Share Were Records in 1997
January 20, 1998
IBM today announced fourth-quarter 1997 net earnings of $2.1 billion, or
$2.16 per common share, an earnings per share increase of 10 percent compared
with net earnings of $2.0 billion, or $1.97 per common share, in the fourth
quarter of 1996. Fourth-quarter 1997 revenues increased 3 percent (8 percent
at constant currency) year over year to a record $23.7 billion.
Louis V. Gerstner, Jr., IBM chairman and chief executive officer, said: "We
had a strong quarter that closed out a very good year. Our strategic
priorities were increasingly evident in our marketplace results. Our services
business continued its excellent growth rate of more than 20 percent for the
year. The momentum of our software business grew throughout 1997, and we
ended the year with an exceptionally strong performance from our Lotus Notes,
Tivoli, and database software products. In addition, our strategy to exploit
IBM's technological base continued to be successful, particularly in storage
products, and in 1997 we repositioned our server product lines from top to
bottom.
"Our results are especially satisfying," Mr. Gerstner said, "because they
were achieved despite a number of very difficult factors, including an
increasingly negative currency impact, weakness in some Asian markets, and
pricing pressures that affected certain product areas. We remain comfortable
with our strategies, with the fundamental strength of our business, and with
our long-term business and financial model."
On an as-reported basis, fourth-quarter revenues from North America were
$10.4 billion, up 9 percent from the same period of 1996. Asia-Pacific
revenues were essentially flat at $4.4 billion (up 10 percent at constant
currency). Revenues from the company's Europe, Middle East, and Africa unit
declined 4 percent (up 5 percent at constant currency) to $7.7 billion. Latin
America revenues grew 4 percent to $1.2 billion (up 7 percent at constant
currency).
Total hardware sales declined 1 percent (up 4 percent in constant currency)
year over year to $11.5 billion. In as-reported terms, RS/6000, storage and
semiconductor revenues increased while overall PC, AS/400 and System/390
revenues declined. On a constant currency basis, hardware sales increased in
all key hardware lines, with the exception of the System/390 and consumer PCs.
Services revenues totaled $5.9 billion, an 18 percent increase (up 24 percent
in constant currency) compared with the year-earlier period. Approximately
$8.5 billion in new services contracts were signed in the quarter, and
services margins were essentially flat year over year at 22.5 percent.
Overall software revenues were $3.8 billion, an increase of 1 percent (up 7
percent in constant currency) compared with the
fourth quarter of 1996. Approximately 4 million Lotus Notes seats were
shipped in the quarter, more than double that of the fourth quarter of 1996.
Tivoli distributed software revenues also doubled year over year. During the
fourth quarter, IBM completed its acquisition of Unison Software, Inc., and
announced plans to acquire Software Artistry, Inc., both of which will
complement Tivoli's network computing offerings.
Maintenance revenues declined 9 percent (down 4 percent in constant currency)
to $1.6 billion in the fourth quarter, compared with the year-earlier period,
and rentals and financing revenues fell 4 percent (up 1 percent in constant
currency) to $1.0 billion.
IBM's overall gross profit margin in the fourth quarter was 40.1 percent
compared with 40.3 percent in the year-earlier period.
Total fourth-quarter 1997 expenses increased 1 percent year over year. The
expense to revenue ratio in the fourth quarter of 1997 was 27.4 percent
compared with 27.8 percent in the year-earlier period.
The company's tax rate was 30.5 percent in the fourth quarter compared with
29.9 percent in the fourth quarter of 1996.
IBM spent approximately $2 billion on share repurchases in the fourth
quarter. The average number of shares outstanding in the fourth quarter of
1997 was 964.8 million compared with 1,026.8 million in the year-earlier
period.
Full-Year 1997 Results
Net earnings for the 12 months ended December 31, 1997 were $6.1 billion, or
a record $6.18 per common share, compared with net earnings of $5.9 billion,
or $5.53 per common share, in full-year 1996. The 1996 figure excludes a
charge associated with research and development related to acquisitions in
the first quarter of 1996. Including this charge, 1996 net earnings were $5.4
billion, or $5.12 per common share.
Revenues for the year ended December 31, 1997 were $78.5 billion, also a
record, an increase of 3 percent (8 percent at constant currency) from the
prior year's $75.9 billion.
On an as-reported basis, hardware sales revenues for full-year 1997 were flat
at $36.2 billion compared with full-year 1996. Services revenues increased 22
percent to $19.3 billion. Software revenues declined 2 percent to $12.8
billion. Maintenance revenues decreased 8 percent to $6.4 billion, while
revenues from rentals and financing were flat at $3.7 billion.
In constant currency terms, full-year 1997 hardware revenues increased 4
percent compared with the previous year. Services revenues grew 28 percent.
Software revenues grew 4 percent. Maintenance revenues fell 3 percent, and
revenues from rentals and financing increased 4 percent.
Common share repurchases totaled $7 billion in 1997, including the $2 billion
in the fourth quarter. The average number of
shares outstanding in 1997 was 983.3 million compared with 1,056.7 million
during 1996. There were a total of 958.1 million common shares outstanding at
year-end 1997.
IBM generated $8.9 billion in cash from operations. The company completed the
year with more than $7.5 billion in cash after spending nearly $7 billion on
capital expenditures and $7 billion on share repurchases.
The company's "core" debt--debt in support of operations, excluding
financing--increased $900 million from year-end 1996 through December 31,
1997 to $3.1 billion. During the same period, debt supporting the company's
worldwide credit operations increased $3.2 billion to $23.8 billion.
- -----
Note: The company has implemented Statement of Financial Accounting Standards
128, "Earnings per Share" (EPS) which is effective for fiscal periods
ending after December 15, 1997. This standard requires presentation of
both basic and diluted EPS on the face of the earnings statement.
Accordingly, these amounts appear on the financial statements attached
to this release. SFAS 128 does not address which number needs to be
discussed in the text of the earnings release, and, consistent with
IBM's past practice, the discussion of earnings per share in this
release focuses on basic EPS. Assuming dilution, net earnings per share
of common stock were $2.11 in the fourth quarter of 1997 compared with
$1.93 per common share in the fourth quarter of 1996. For full-year
1997, net earnings per share of common stock, assuming dilution, were
$6.01 compared with $5.41 during the year-earlier period.
FORWARD LOOKING AND CAUTIONARY STATEMENTS
Except for the historical information and discussions contained herein,
statements included 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
SUPPLEMENTAL SCHEDULE--COMPARATIVE FINANCIAL RESULTS
(EXCLUDES EFFECT OF PURCHASED R&D FOR TWELVE MONTHS 1996)*
(Dollars in millions except per share amounts)
THREE MONTHS TWELVE MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
--------------------------------- ---------------------------------
PERCENT PERCENT
1997 1996 CHANGE 1997 1996 CHANGE
--------- --------- ----------- --------- --------- -----------
REVENUE
Hardware sales........................ $ 11,507 $ 11,660 -1.3% $ 36,229 $ 36,316 -0.2%
Gross margin........................ 37.3% 36.6% 35.0% 35.6%
Services.............................. 5,886 5,009 17.5% 19,302 15,873 21.6%
Gross margin........................ 22.5% 22.3% 20.8% 20.3%
Software.............................. 3,771 3,718 1.4% 12,844 13,052 -1.6%
Gross margin........................ 71.8% 68.4% 70.5% 68.7%
Maintenance........................... 1,593 1,755 -9.2% 6,402 6,981 -8.3%
Gross margin........................ 47.9% 47.1% 47.0% 47.6%
Rentals and financing................. 966 1,001 -3.5% 3,731 3,725 0.1%
Gross margin........................ 44.3% 56.6% 49.0% 56.4%
TOTAL REVENUE......................... 23,723 23,143 2.5% 78,508 75,947 3.4%
GROSS PROFIT.......................... 9,518 9,321 2.1% 30,609 30,539 0.2%
Gross margin........................ 40.1% 40.3% 39.0% 40.2%
OPERATING EXPENSES
S,G&A................................. 5,060 5,093 -0.6% 16,634 16,854 -1.3%
% of revenue........................ 21.3% 22.0% 21.2% 22.2%
R,D&E................................. 1,425 1,332 7.0% 4,877 4,654 4.8%
% of revenue........................ 6.0% 5.8% 6.2% 6.1%
OPERATING INCOME...................... 3,033 2,896 4.7% 9,098 9,031 0.7%
Other income.......................... 173 181 -3.7% 657 707 -7.0%
Interest expense...................... 194 190 2.2% 728 716 1.6%
EARNINGS BEFORE INCOME TAXES.......... 3,012 2,887 4.3% 9,027 9,022 0.1%
Pre-tax margin...................... 12.7% 12.4% 11.5% 11.9%
Provision for income taxes............ 919 864 6.4% 2,934 3,158 -7.1%
Effective tax rate.................. 30.5% 29.9% 32.5% 35.0%
NET EARNINGS *........................ $ 2,093 $ 2,023 3.4% $ 6,093 $ 5,864 3.9%
Net margin.......................... 8.8% 8.7% 7.8% 7.7%
Preferred stock dividends............. 5 5 20 20
NET EARNINGS APPLICABLE TO COMMON
SHAREHOLDERS........................ $ 2,088 $ 2,018 3.4% $ 6,073 $ 5,844 3.9%
--------- --------- --------- ---------
--------- --------- --------- ---------
NET EARNINGS PER
SHARE OF COMMON STOCK................. $ 2.16 $ 1.97 9.6% $ 6.18 $ 5.53 11.8%
--------- --------- --------- ---------
--------- --------- --------- ---------
NET EARNINGS PER SHARE OF COMMON
STOCK--ASSUMING DILUTION............ $ 2.11 $ 1.93 9.3% $ 6.01 $ 5.41 11.0%
--------- --------- --- --------- --------- ---
--------- --------- --- --------- --------- ---
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING (M's)................... 964.8 1,026.8 983.3 1,056.7
* Supplemental information provided for comparative purposes: Net earnings
for the twelve months 1996 excludes a $435 million non-recurring, non-tax
deductible charge for purchased in-process research and development in
connection with the Tivoli Systems Inc. and Object Technology International
Inc. acquisitions in March 1996.
Note: All references to the average number of common shares and per common
share data for all periods presented reflect a 2-for-1 stock split of the
common stock effective May 9, 1997.
INTERNATIONAL BUSINESS MACHINES CORPORATION
COMPARATIVE FINANCIAL RESULTS
(Dollars in millions except per share amounts)
THREE MONTHS TWELVE MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
------------------------------------------- ---------------------------------
PERCENT PERCENT
1997 1996 CHANGE 1997 1996 CHANGE
-------------- -------------- ----------- --------- --------- -----------
REVENUE
Hardware sales.................................. $ 11,507 $ 11,660 -1.3% $ 36,229 $ 36,316 -0.2%
Gross margin.................................. 37.3% 36.6% 35.0% 35.6%
Services........................................ 5,886 5,009 17.5% 19,302 15,873 21.6%
Gross margin.................................. 22.5% 22.3% 20.8% 20.3%
Software........................................ 3,771 3,718 1.4% 12,844 13,052 -1.6%
Gross margin.................................. 71.8% 68.4% 70.5% 68.7%
Maintenance..................................... 1,593 1,755 -9.2% 6,402 6,981 -8.3%
Gross margin.................................. 47.9% 47.1% 47.0% 47.6%
Rentals and financing........................... 966 1,001 -3.5% 3,731 3,725 0.1%
Gross margin.................................. 44.3% 56.6% 49.0% 56.4%
TOTAL REVENUE................................... 23,723 23,143 2.5% 78,508 75,947 3.4%
GROSS PROFIT.................................... 9,518 9,321 2.1% 30,609 30,539 0.2%
Gross margin.................................. 40.1% 40.3% 39.0% 40.2%
OPERATING EXPENSES
S,G&A........................................... 5,060 5,093 -0.6% 16,634 16,854 -1.3%
% of revenue.................................. 21.3% 22.0% 21.2% 22.2%
R,D&E........................................... 1,425 1,332 7.0% 4,877 5,089 -4.2%
% of revenue.................................. 6.0% 5.8% 6.2% 6.7%
OPERATING INCOME................................ 3,033 2,896 4.7% 9,098 8,596 5.8%
Other income.................................... 173 181 -3.7% 657 707 -7.0%
Interest expense................................ 194 190 2.2% 728 716 1.6%
EARNINGS BEFORE INCOME TAXES.................... 3,012 2,887 4.3% 9,027 8,587 5.1%
Pre-tax margin................................ 12.7% 12.4% 11.5% 11.3%
Provision for income taxes...................... 919 864 6.4% 2,934 3,158 -7.1%
Effective tax rate............................ 30.5% 29.9% 32.5% 36.8%
NET EARNINGS *.................................. $ 2,093 $ 2,023 3.4% $ 6,093 $ 5,429 12.2%
Net margin.................................... 8.8% 8.7% 7.8% 7.1%
Preferred stock dividends....................... 5 5 20 20
NET EARNINGS APPLICABLE TO COMMON
SHAREHOLDERS.................................. $ 2,088 $ 2,018 3.4% $ 6,073 $ 5,409 12.3%
-------------- -------------- --------- ---------
-------------- -------------- --------- ---------
NET EARNINGS PER SHARE OF COMMON STOCK.......... $ 2.16 $ 1.97 9.6% $ 6.18 $ 5.12 20.7%
-------------- -------------- --------- ---------
-------------- -------------- --------- ---------
NET EARNINGS PER SHARE OF COMMON STOCK--ASSUMING
DILUTION...................................... $ 2.11 $ 1.93 9.3% $ 6.01 $ 5.01 20.0%
-------------- -------------- --------- ---------
-------------- -------------- --------- ---------
AVERAGE NUMBER OF COMMON SHARES OUT-STANDING
(M's)......................................... 964.8 1,026.8 983.3 1,056.7
* Net earnings for the twelve months 1996 includes a $435 million
non-recurring, non-tax deductible charge for purchased in-process research
and development in connection with the Tivoli Systems Inc. and Object
Technology International Inc. acquisitions in March 1996. Net earnings
excluding the charge
were $5,864 million, or $5.53 per common share.
Note: All references to the average number of common shares and per common
share data for all periods presented reflect a 2-for-1 stock split of the
common stock effective May 9, 1997.
INTERNATIONAL BUSINESS MACHINES CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Dollars in millions)
AT AT
DECEMBER 31 DECEMBER 31 PERCENT
1997 1996 CHANGE
----------- ----------- -------
ASSETS
Cash, cash equivalents, and marketable securities..... $ 7,553 $ 8,137 -7.2%
Receivables--net, inventories, and prepaid expenses... 32,865 32,558 0.9%
Plant, rental machines, and other property--net....... 18,347 17,407 5.4%
Investments and other assets.......................... 22,734 23,030 -1.3%
----------- -----------
TOTAL ASSETS.......................................... $ 81,499 $ 81,132 0.4%
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt....................................... $ 13,230 $ 12,957 2.1%
Long-term debt........................................ 13,696 9,872 38.7%
----------- -----------
Total debt............................................ 26,926 22,829 17.9%
Accounts payable, taxes, and accruals................. 20,277 21,043 -3.6%
Other liabilities..................................... 14,480 15,632 -7.4%
----------- -----------
TOTAL LIABILITIES..................................... 61,683 59,504 3.7%
STOCKHOLDERS' EQUITY.................................. 19,816 21,628 -8.4%
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............ $ 81,499 $ 81,132 0.4%
----------- -----------
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