Interim Results
Interim Results
ARMONK, N.Y.--(BUSINESS WIRE)--July 17, 2003--
IBM Reports 2003 Second-Quarter Results
- Diluted earnings per share of $.98 from continuing operations
increased 292 percent in the second quarter, or 10 percent excluding
year-ago period charges;
- Income from continuing operations of $1.7 billion grew 288 percent
year over year, or 11 percent excluding the charges;
- Second-quarter revenues from continuing operations of $21.6
billion, up 10 percent
IBM today announced second- quarter 2003 diluted earnings per common
share of $.98 from continuing operations compared with diluted
earnings per common share of $.25 in the prior-year period, an
increase of 292 percent. Diluted earnings per share grew 10 percent
year over year after excluding incremental charges of $1.1 billion
after tax, or $.64 from the year-ago period for 2002 actions. Income
from continuing operations for the second- quarter 2003 was $1.7
billion compared with $445 million in the second quarter of 2002, an
increase of 288 percent. Second-quarter 2003 income from continuing
operations grew 11 percent excluding the charges from the prior-year
period for 2002 actions. Revenues from continuing operations for the
second quarter were $21.6 billion, up 10 percent (3 percent at
constant currency) compared with the second quarter of 2002 revenues
of $19.7 billion.
Samuel J. Palmisano, IBM chairman and chief executive officer, said:
'Once again, IBM delivered a solid quarter despite the challenging
economic environment. We continued our momentum from the first quarter
and grew revenues and earnings per share and gained market share in
our strategic businesses. Further, we are benefiting from our
acquisitions, as well as the restructuring actions we took last year.
Most importantly, we are encouraged by the acceptance of our
e-business on demand strategy as more customers realize the
productivity gains associated with becoming an on demand business.
'IBM Global Services delivered strong double-digit revenue growth
reinforcing our leadership position in IT services. We are also very
pleased with our continued momentum in the small and medium-sized
businesses, strengthened by a new line of 'Express' solutions aimed
squarely at the needs of this fast growing customer base. In addition,
IBM eServers also generated strong growth, particularly in our xSeries
systems and UNIX-based IBM pSeries.
'Finally, we believe the industry will continue to evolve where
business process insight combined with technology leadership will be
what customers want to ensure the success of their companies. And
while it is difficult to predict the certainty of an economic rebound,
IBM is in the best position to benefit further from any upturn in the
market or the economy overall.'
In the Americas, second-quarter revenues from continuing operations
were $9.5 billion, an increase of 5 percent (5 percent at constant
currency) from the 2002 period. Revenues from Europe/Middle
East/Africa were $6.9 billion, up 23 percent (3 percent at constant
currency). Asia-Pacific revenues improved 12 percent (6 percent at
constant currency) to $4.6 billion. OEM revenues across all
geographies decreased 30 percent (31 percent at constant currency) to
$588 million compared with the second quarter of 2002.
Revenues from Global Services, including maintenance, increased 23
percent (14 percent at constant currency) in the second quarter to
$10.6 billion aided by the addition of the former PwC Consulting
business. Global Services revenues, excluding maintenance, increased
25 percent (17 percent at constant currency). IBM signed $10.7 billion
in services contracts in the quarter and ended the quarter with an
estimated backlog of $112 billion.
Total hardware revenues from continuing operations decreased 1 percent
(6 percent at constant currency) to $6.6 billion from the 2002 second
quarter. Systems Group revenues, which include IBM eServers and
storage systems products, were $3.2 billion, up 10 percent (3 percent
at constant currency). In eServers, xSeries Intel processor- based
servers and pSeries UNIX-based servers grew revenues. Revenues from
iSeries midrange servers increased (down at constant currency).
Revenues from zSeries mainframe servers declined as MIPS (millions of
instructions per second) -- a measure of total delivery of mainframe
computing power -- declined 7 percent versus the year-ago period.
Notably, in May, the new on demand enterprise mainframe, z990, was
introduced. Storage systems revenues were up largely as a result of
demand for disk storage, particularly high-end Shark and midrange
FAStT products.
Also in the second-quarter 2003, Personal Systems Group revenues
declined 3 percent (8 percent at constant currency) to $2.7 billion
primarily from lower revenues for personal computers. Technology Group
revenues were $659 million, down 34 percent (35 percent at constant
currency) partly for actions taken in 2002 including the divestiture
of multiple non-core businesses, to refocus and direct the
Microelectronics Division to high-end foundry, ASICs and standard
products, while building a technology services business.
Revenues from Software increased 6 percent (down 2 percent at constant
currency) to $3.5 billion compared with the prior year's second
quarter. Middleware brands, which include WebSphere and DB2 product
families, grew revenues 7 percent (down 1 percent at constant
currency) to $2.7 billion in the second quarter of 2003. Operating
systems revenues increased 5 percent (down 2 percent at constant
currency) to $589 million compared with the year-ago period. The post-
acquisition results of operations for Rational, acquired in the first-
quarter 2003, are included in the software segment results.
WebSphere, IBM's family of e-business on demand middleware products,
grew revenues 14 percent (6 percent at constant currency) from a year
ago. IBM's leading database management software, DB2, improved
revenues 16 percent (7 percent at constant currency). Revenues from
Tivoli increased 9 percent (flat at constant currency) and Lotus
revenues declined 3 percent (12 percent at constant currency).
Global Financing revenues decreased 18 percent (24 percent at constant
currency) in the second quarter to $672 million. Revenues from the
Enterprise Investments/Other area, which includes industry- specific
IT solutions, increased 6 percent (down 1 percent at constant
currency) compared to the second quarter of 2002 to $240 million.
The company's total gross profit margin from continuing operations was
37.0 percent in the 2003 second quarter, unchanged from the same
period in 2002.
In the second quarter of 2003, total expense and other income from
continuing operations was $5.5 billion, compared with $6.7 billion in
the year-ago period which included incremental pre-tax charges of $1.6
billion associated with the realignment of the Microelectronics
Division and productivity actions in the second-quarter 2002.
In the quarter, selling, general and administrative expense was $4.5
billion including expense associated with the recent acquisitions of
the former PwC Consulting and Rational, compared with year-ago expense
of $5.3 billion which included pre-tax charges of $1.1 billion for
second-quarter 2002 actions. Research, development and engineering
expense increased 2 percent largely due to acquisitions. Intellectual
property and custom development income declined 18 percent, and,
despite higher foreign exchange losses on hedging contracts, other
(income) and expense had a lower negative impact versus the year-ago
quarter that included the 2002 actions as well.
IBM's tax rate from continuing operations in the second quarter was
30.0 percent compared with 25.3 percent in the second quarter of 2002.
The prior-year rate was lower due to the tax effect of the second-
quarter actions.
For total operations, net income for the second-quarter 2003,
including discontinued operations, was $1.7 billion, or $.97 per
diluted common share, compared with second-quarter 2002 net income of
$56 million which included $1.4 billion in charges after tax
associated with second-quarter actions, or $.03 per diluted share
after $.81 per diluted share for the charges.
IBM spent approximately $106 million on share repurchases in the
second quarter. There were 1.73 billion basic common shares
outstanding at June 30, 2003. The average number of diluted common
shares outstanding in the quarter was 1.76 billion compared with 1.73
billion shares in the same period of 2002.
Debt, including Global Financing, totaled $23.8 billion, a decline of
$2.2 billion from year-end 2002. Under a management segment view, the
non-global financing debt-to-capitalization ratio was 3.7 percent at
June 30, 2003, and Global Financing debt declined $861 million from
year-end 2002 to a total of $23.0 billion, resulting in a debt-to-
equity ratio of 6.7 to 1.
Income from continuing operations for the six months ended June 30,
2003 was $3.1 billion compared with $1.7 billion for the same period
of 2002 which included charges of $1.1 billion after tax associated
with second-quarter 2002 actions. Diluted earnings per common share
from continuing operations was $1.77 compared with $.98 after the
second-quarter charges of $.64 per diluted share. Revenues from
continuing operations for the six months ended June 30, 2003 totaled
$41.7 billion, up 11 percent (4 percent at constant currency) compared
with $37.7 billion for the six months of 2002.
For total operations, net income for the six months of 2003, including
discontinued operations, was $3.1 billion, or $1.75 per diluted common
share, compared with the six months of 2002 net income of $1.2 billion
which included $1.4 billion in charges after tax associated with
second-quarter 2002 actions, or $.71 per diluted share after $.81 per
diluted share for the charges.
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 (SEC).
Presentation of Information in this Press Release
This release includes certain non-GAAP financial measures, as defined
under SEC rules. The company provides a reconciliation of those
measures to the most directly comparable GAAP measures and a list of
the reasons why the company uses these measures, as part of the
supplementary materials being presented within the second-quarter
earnings materials. These materials are available on the IBM investor
relations website at www.ibm.com/investor.
Conference Call and Webcast
IBM's regular quarterly earnings conference call is scheduled to begin
at 4:30 p.m. EDT, today. Investors may participate by viewing the
webcast at www.ibm.com/investor/2q03.
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
2003 2002 Change 2003 2002 Change
------- ------- ------- ------- ------- -------
REVENUE
Global Services $10,635 $8,661 22.8% $20,804 $16,890 23.2%
Gross margin 25.9% 26.3% 25.4% 26.1%
Hardware 6,613 6,672 -0.9% 12,421 12,556 -1.1%
Gross margin 26.9% 24.8% 26.8% 24.6%
Software 3,471 3,266 6.2% 6,600 6,163 7.1%
Gross margin 86.2% 84.7% 85.4% 83.0%
Global Financing 672 825 -18.4% 1,377 1,608 -14.4%
Gross margin 54.6% 56.8% 56.8% 56.7%
Enterprise Investments/
Other 240 227 5.8% 494 464 6.6%
Gross margin 41.9% 45.8% 39.2% 51.1%
TOTAL REVENUE 21,631 19,651 10.1% 41,696 37,681 10.7%
GROSS PROFIT 7,998 7,270 10.0% 15,231 13,770 10.6%
Gross margin 37.0% 37.0% 36.5% 36.5%
EXPENSE AND OTHER INCOME
S,G&A 4,460 5,288 -15.7% 8,675 9,311 -6.8%
% of revenue 20.6% 26.9% 20.8% 24.7%
R,D&E 1,226 1,198 2.3% 2,421 2,333 3.8%
% of revenue 5.7% 6.1% 5.8% 6.2%
Intellectual property
and custom development
income (199) (243) -18.0% (481) (539) -10.8%
Other (income)
and expense 4 399 -98.9% 88 194 -54.6%
Interest expense 41 33 25.1% 81 63 28.6%
TOTAL EXPENSE AND
OTHER INCOME 5,532 6,675 -17.1% 10,784 11,362 -5.1%
% of revenue 25.6% 34.0% 25.9% 30.2%
INCOME FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES 2,466 595 314.4% 4,447 2,408 84.6%
Pre-tax margin 11.4% 3.0% 10.7% 6.4%
Provision for
income taxes 741 150 392.1% 1,335 679 96.4%
Effective tax
rate 30.0% 25.3% 30.0% 28.2%
INCOME FROM CONTINUING
OPERATIONS $1,725 $445 288.1% $3,112 $1,729 80.0%
Net margin 8.0% 2.3% 7.5% 4.6%
DISCONTINUED OPERATIONS
Loss from discontinued
operations (20) (389) (23) (481)
NET INCOME $1,705 $56 2,951.4% $3,089 $1,248 147.5%
====== ====== ====== ======
EARNINGS/(LOSS)PER SHARE
OF COMMON STOCK:
ASSUMING DILUTION
CONTINUING
OPERATIONS $0.98 $0.25 292.0% $1.77 $0.98 80.6%
DISCONTINUED
OPERATIONS (0.01) (0.22) (0.01) (0.28)
------ ------ ------ ------
TOTAL $0.97 $0.03 3,133.3% $1.75* $0.71* 146.5%
====== ====== ====== ======
BASIC
CONTINUING
OPERATIONS $1.00 $0.26 284.6% $1.80 $1.01 78.2%
DISCONTINUED
OPERATIONS (0.01) (0.23) (0.01) (0.28)
------ ------ ------ ------
TOTAL $0.99 $0.03 3,200.0% $1.79 $0.73 145.2%
====== ====== ====== ======
AVERAGE NUMBER OF
COMMON SHARES OUT-
STANDING (M's)
ASSUMING
DILUTION 1,763.7 1,730.4 1,761.1 1,741.7
BASIC 1,729.8 1,705.0 1,727.6 1,711.7
* Does not total due to rounding.
INTERNATIONAL BUSINESS MACHINES CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Unaudited)
At At
(Dollars in millions) June 30, December 31, Percent
2003 2002 Change
--------- ----------- -------
ASSETS
Cash, cash equivalents,
and marketable securities $5,821 $5,975 -2.6%
Receivables - net, inventories,
prepaid expenses 33,974 35,677 -4.8%
Plant, rental machines,
and other property - net 14,560 14,440 0.8%
Investments and other assets 42,583 40,392 5.4%
-------- --------
TOTAL ASSETS $96,938 $96,484 0.5%
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt $4,873 $6,031 -19.2%
Long-term debt 18,972 19,986 -5.1%
-------- --------
Total debt 23,845 26,017 -8.3%
Accounts payable, taxes,
and accruals 26,638 28,519 -6.6%
Other liabilities 19,882 19,166 3.7%
-------- --------
TOTAL LIABILITIES 70,365 73,702 -4.5%
STOCKHOLDERS' EQUITY 26,573 22,782 16.6%
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $96,938 $96,484 0.5%
======== ========
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
SECOND QUARTER 2003
----------------------------------------------
Pre-tax
Income
(Loss)
From
(Dollars in millions) --------- Revenue -------- Continuing Pre-tax
External Internal Total Operations Margin
-------- -------- ------- ---------- -------
SEGMENTS
Global Services $10,635 $695 $11,330 $1,168 10.3%
% change 22.8% -6.2% 20.5% 65.4%
Systems Group 3,221 182 3,403 396 11.6%
% change 9.8% 13.8% 10.0% 117.6%
Personal Systems Group 2,723 44 2,767 (8) -0.3%
% change -2.7% 33.3% -2.3% 77.1%
Technology Group 659 237 896 (111) -12.4%
% change -34.3% 19.1% -25.5% 88.2%
Software 3,471 390 3,861 850 22.0%
% change 6.2% 23.8% 7.8% -6.9%
Global Financing 681 307 988 296 30.0%
% change -16.7% 59.1% -2.3% 24.9%
Enterprise Investments 227 1 228 (87) -38.2%
% change 1.8% 0.0% 1.8% -7.4%
TOTAL SEGMENTS 21,617 1,856 23,473 2,504 10.7%
% change 9.7% 13.0% 10.0% 155.8%
Eliminations / Other 14 (1,856) (1,842) (38)
TOTAL IBM $21,631 $0 $21,631 $2,466 11.4%
% change 10.1% 10.1% 314.4%
SECOND QUARTER 2002
----------------------------------------------
Pre-tax
Income
(Loss)
From
(Dollars in millions) --------- Revenue -------- Continuing Pre-tax
External Internal Total Operations Margin
-------- -------- ------- ---------- -------
SEGMENTS
Global Services $8,661 $741 $9,402 $706 7.5%
Systems Group 2,934 160 3,094 182 5.9%
Personal Systems Group 2,800 33 2,833 (35) -1.2%
Technology Group 1,003 199 1,202 (943) -78.5%
Software 3,266 315 3,581 913 25.5%
Global Financing 818 193 1,011 237 23.4%
Enterprise Investments 223 1 224 (81) -36.2%
TOTAL SEGMENTS 19,705 1,642 21,347 979 4.6%
Eliminations / Other (54) (1,642) (1,696) (384)
TOTAL IBM $19,651 $0 $19,651 $595 3.0%
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
SIX MONTHS 2003
----------------------------------------------
Pre-tax
Income
(Loss)
From
(Dollars in millions) --------- Revenue -------- Continuing Pre-tax
External Internal Total Operations Margin
-------- -------- ------- ---------- -------
SEGMENTS
Global Services $20,804 $1,394 $22,198 $2,151 9.7%
% change 23.2% 0.9% 21.5% 20.9%
Systems Group 5,867 362 6,229 591 9.5%
% change 8.3% 11.0% 8.4% 64.6%
Personal Systems Group 5,113 80 5,193 (77) -1.5%
% change -3.7% 73.9% -3.1% -356.7%
Technology Group 1,401 411 1,812 (122) -6.7%
% change -27.5% -5.5% -23.5% 88.7%
Software 6,600 777 7,377 1,489 20.2%
% change 7.1% 43.4% 10.0% 1.1%
Global Financing 1,382 602 1,984 569 28.7%
% change -12.9% 58.8% 1.0% 24.0%
Enterprise Investments 468 2 470 (154) -32.8%
% change 3.1% 0.0% 3.1% -14.9%
TOTAL SEGMENTS 41,635 3,628 45,263 4,447 9.8%
% change 10.3% 16.6% 10.8% 54.2%
Eliminations / Other 61 (3,628) (3,567) 0
TOTAL IBM $41,696 $0 $41,696 $4,447 10.7%
% change 10.7% 10.7% 84.6%
SIX MONTHS 2002
----------------------------------------------
Pre-tax
Income
(Loss)
From
(Dollars in millions) --------- Revenue -------- Continuing Pre-tax
External Internal Total Operations Margin
-------- -------- ------- ---------- -------
SEGMENTS
Global Services $16,890 $1,381 $18,271 $1,779 9.7%
Systems Group 5,418 326 5,744 359 6.3%
Personal Systems Group 5,311 46 5,357 30 0.6%
Technology Group 1,933 435 2,368 (1,082) -45.7%
Software 6,163 542 6,705 1,473 22.0%
Global Financing 1,586 379 1,965 459 23.4%
Enterprise Investments 454 2 456 (134) -29.4%
TOTAL SEGMENTS 37,755 3,111 40,866 2,884 7.1%
Eliminations / Other (74) (3,111) (3,185) (476)
TOTAL IBM $37,681 $0 $37,681 $2,408 6.4%
Short Name: Intnl Bus. Mach
Category Code: IR
Sequence Number: 00007225
Time of Receipt (offset from UTC): 20030716T211152+0100