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Quarterly earnings
Second-Quarter Earnings Announcement
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IBM REPORTS 2007 SECOND-QUARTER RESULTS
- Total revenues of $23.8 billion, up 9 percent as reported;
- Global Services revenues up 10 percent, Software revenues up 13 percent;
- Diluted earnings of $1.55 per share, including a gain from
sale of Printing Systems; earnings per share were $1.50, up
15 percent without the gain;
- Gross profit margin increased year to year for the 12th
consecutive quarter.
ARMONK, N.Y., July 18, 2007 . . . IBM (NYSE: IBM) today announced
second-quarter 2007 diluted earnings of $1.55 per share from continuing
operations, including 5 cents per share for a pre-tax gain of
$81 million relating to the sale of the Printing Systems Division (PSD),
an increase of 19 percent as reported, compared with diluted earnings of
$1.30 per share in the second quarter of 2006. Diluted earnings for the
second-quarter 2007 were $1.50 per share, excluding this gain,
an increase of 15 percent year over year.
Second-quarter income from continuing operations was $2.3 billion,
including the gain from the sale of PSD, compared with $2.0
billion in the second quarter of 2006, an increase of 12 percent.
Without the gain, income from continuing operations of $2.2
billion in the second quarter of 2007 increased $167 million, or 8
percent versus the comparable period last year. Total revenues for the
second quarter of 2007 of $23.8 billion increased 9 percent (6 percent,
adjusting for currency) from the second quarter of 2006.
"This quarter's strong revenue growth --- our best since 2001 ---
underscores IBM's global capabilities, as well as the higher value that
clients place on our expanding software product line and wide range of
services offerings that are helping them transform their businesses,"
said Samuel J. Palmisano, IBM chairman, president and chief executive
officer. "Our overall results again demonstrate the strength of our
business model and our ability to achieve profitable growth and strong
cash generation. Earlier this year we described to our investors IBM's
objective for earnings per share growth through 2010. While this is a
long-term goal, our first-half results represent solid progress on major
elements of this roadmap, including earnings growth, margin expansion,
and revenue growth in key areas: emerging markets, acquisitions and
service oriented architecture opportunities."
From a geographic perspective, the Americas' second-quarter
revenues were $10.1 billion, an increase of 6 percent as reported (5
percent, adjusting for currency) from the 2006 period. Revenues from
Europe/Middle East/Africa were $8.2 billion, up 13 percent (6 percent,
adjusting for currency). Asia-Pacific revenues increased 10 percent (10
percent, adjusting for currency) to $4.6 billion. OEM revenues were
$852 million, down 9 percent compared with the 2006 second quarter.
Total Global Services revenues grew 10 percent (7 percent,
adjusting for currency), led by growth in Asia Pacific. Global Business
Services segment revenues, which benefited from strong client demand for
SOA offerings and global delivery capabilities, increased 10 percent (8
percent, adjusting for currency) to $4.3 billion. Global Technology
Services segment revenues increased 10 percent (7 percent, adjusting for
currency) to $8.8 billion, with significant growth from existing
clients. IBM signed services contracts totaling $11.7 billion, up 22
percent year over year, and ended the second quarter with an estimated
services backlog, including Strategic Outsourcing, Business
Transformation Outsourcing, Integrated Technology Services, Global
Business Services and Maintenance, of $116 billion, an increase of $7
billion year to year.
Revenues from the Systems and Technology segment totaled $5.1
billion for the quarter, up 2 percent (flat, adjusting for currency).
Systems and Technology revenues from the System p UNIX server products
increased 7 percent compared with the 2006 period and revenues from the
System x servers increased 16 percent. Revenues from System z server
products increased 4 percent compared with the year-ago period. Total
delivery of System z computing power, which is measured in MIPS
(millions of instructions per second), increased 45 percent, marking
eight consecutive quarters of year-to-year MIPS growth. Revenues from
the System i servers decreased 15 percent. Revenues from System Storage
increased 6 percent and revenues from Microelectronics decreased 9
percent.
Revenues from the Software segment were $4.8 billion, an increase
of 13 percent (9 percent, adjusting for currency) compared with the
second quarter of 2006. Revenues from IBM's middleware products, which
primarily include WebSphere, Information Management, Tivoli, Lotus and
Rational products, were $3.7 billion, up 16 percent versus the second
quarter of 2006. Operating systems revenues of $568 million increased 2
percent compared with the prior-year quarter.
For the WebSphere family of software products, which facilitate
customers' ability to manage a wide variety of business processes using
open standards to interconnect applications, data and operating systems,
revenues increased 28 percent. Revenues for Information Management
software, which enables clients to leverage information on demand,
increased 21 percent. Revenues from Tivoli software, infrastructure
software that enables clients to centrally manage networks
including security and storage capability, increased 33 percent, and
revenues for Lotus software, which allows collaborating and messaging by
clients in real-time communication and knowledge management,
increased 12 percent year over year. Revenues from Rational software,
integrated tools to improve the processes of software development,
increased 11 percent compared with the year-ago quarter.
Global Financing segment revenues increased 4 percent (1 percent,
adjusting for currency) in the second quarter to $597 million.
The company's total gross profit margin was 41.8 percent in the
2007 second quarter compared with 41.2 percent in the 2006 period -- the
12th consecutive quarter of year-to-year increase.
Total expense and other income increased 11 percent to $6.8 billion
compared with the prior-year period, and increased 12 percent without
the gain from the PSD sale. SG&A expense increased 15
percent to $5.6 billion. RD&E expense increased 1 percent compared with
the year-ago period. Intellectual property and custom development
income increased to $246 million compared with $188 million a year ago.
Other (income) and expense contributed income of $253 million in the
second quarter of 2007, including the gain from the PSD sale, versus
income of $196 million in the second quarter of 2006. Without the
benefit, other (income) and expense contributed income of $172 million
in the quarter.
IBM's effective tax rate in the second-quarter 2007 was 28.0
percent compared with 30.0 percent in the second quarter of 2006.
Excluding the impact of the gain from the PSD sale, the second-quarter 2007 tax rate was 28.5 percent compared with 30.0 percent in the year-ago quarter.
Shares repurchased in the second quarter were approximately $14.6
billion, including $12.5 billion executed through accelerated share
repurchase agreements in May. The repurchases are part of the $15
billion authorization for the company's stock repurchase program
approved by the IBM board of directors on April 24.
The weighted-average number of diluted common shares outstanding in
the second-quarter 2007 was 1.46 billion compared with 1.56 billion
shares in the same period of 2006. As of June 30, 2007, there were 1.36
billion basic common shares outstanding.
Debt, including Global Financing, totaled $34.7 billion, compared
with $22.7 billion at year-end 2006. From a management segment view,
the non-global financing debt-to-capitalization ratio was 46.7 percent
at the end of June 30, 2007, reflecting increased financial leverage
associated with the accelerated share repurchase agreements. Global
Financing debt increased $658 million from year-end 2006 to a total of
$22.9 billion, resulting in a debt-to-equity ratio of 7.0 to 1.
Year-To-Date 2007 Results
Income from continuing operations for the six months ended June 30,
2007 was $4.1 billion, including the gain for the sale of PSD,
compared with $3.7 billion in the year-ago period. Diluted
earnings per share from continuing operations were $2.75 compared with
$2.37 per diluted share for the 2006 period. Without the gain,
income from continuing operations for the six months ended June
30, 2007 was $4.0 billion, or $2.70 per diluted share. Revenues from
continuing operations for the six-month period totaled $45.8 billion, an
increase of 8 percent (5 percent, adjusting for currency) compared with
$42.5 billion for the six months of 2006.
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, including the company's failure to continue to
develop and market new and innovative products and services and to keep
pace with technological change; competitive pressures; failure to obtain
or protect intellectual property rights; quarterly fluctuations in
revenues and volatility of stock prices; the company's ability to
attract and retain key personnel; adverse affects from tax matters;
currency fluctuations and customer financing risks; customer credit risk
on trade receivables; the company's failure to maintain the adequacy of
its internal controls; the company's use of certain estimates and
assumptions; dependence on certain suppliers; changes in the financial
or business condition of the company's distributors or resellers; the
company's ability to successfully manage acquisitions and alliances;
failure to have sufficient insurance; legal, political, health and
economic conditions; risk factors related to IBM securities; and other
risks, uncertainties and factors discussed in the company's Form 10-Q,
Form 10-K and in the company's other filings with the U.S. Securities
and Exchange Commission (SEC) or in materials incorporated therein by
reference. The company assumes no obligation to update or revise any
forward-looking statements.
Presentation of Information in this Press Release
In an effort to provide investors with additional information
regarding the company's results as determined by generally accepted
accounting principles (GAAP), the company has also disclosed in this
press release the following non-GAAP information which management
believes provides useful information to investors:
IBM Results -
- certain financial results adjusted for the gain
associated with the divestiture of the Printing
Systems business,
- adjusting for currency (i.e., at constant currency).
The rationale for management's use of non-GAAP measures is included
as part of the supplementary materials presented within the second-quarter earnings materials. These materials are available on the IBM investor relations Web site at www.ibm.com/investor and are being
included in Attachment II ("Non-GAAP Supplementary Materials") to the
Form 8-K that includes this press release and is being submitted today
to the SEC.
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/2q07. Presentation charts will be available on the Web site prior to the Webcast.
Financial Results Attached (certain amounts may not add due to use of
rounded numbers; percentages presented are calculated from the
underlying whole-dollar amounts).
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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
2007 2006 Change 2007 2006 Change
------- ------- ------- ------- ------- -------
REVENUE
Global Technology
Services $8,756 $7,955 10.1% $17,013 $15,674 8.5%
Gross margin 29.8% 29.8% 29.5% 29.5%
Global Business
Services 4,338 3,939 10.1% 8,521 7,787 9.4%
Gross margin 24.3% 23.4% 24.1% 22.4%
Systems and
Technology 5,102 5,014 1.8% 9,622 9,433 2.0%
Gross margin 37.3% 36.5% 36.1% 34.4%
Software 4,777 4,241 12.7% 9,028 8,147 10.8%
Gross margin 84.9% 84.2% 84.3% 84.2%
Global Financing 597 576 3.6% 1,211 1,158 4.6%
Gross margin 46.0% 51.1% 48.5% 52.0%
Other 201 165 22.3% 404 349 15.8%
Gross margin 19.8% 14.9% 15.9% 7.7%
TOTAL REVENUE 23,772 21,890 8.6% 45,801 42,549 7.6%
GROSS PROFIT 9,938 9,014 10.3% 18,804 17,102 10.0%
Gross margin 41.8% 41.2% 41.1% 40.2%
EXPENSE AND OTHER INCOME
S,G&A 5,631 4,916 14.5% 10,720 9,518 12.6%
% of revenue 23.7% 22.5% 23.4% 22.4%
R,D&E 1,534 1,522 0.8% 3,044 2,977 2.2%
% of revenue 6.5% 7.0% 6.6% 7.0%
Intellectual property
and custom development
income (246) (188) 30.9% (451) (418) 8.1%
Other (income)
and expense (253) (196) 29.1% (432) (442) -2.2%
Interest expense 130 72 82.1% 203 138 47.3%
TOTAL EXPENSE AND
OTHER INCOME 6,796 6,125 11.0% 13,083 11,774 11.1%
% of revenue 28.6% 28.0% 28.6% 27.7%
INCOME FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES 3,142 2,889 8.8% 5,721 5,328 7.4%
Pre-tax margin 13.2% 13.2% 12.5% 12.5%
Provision for
income taxes 881 867 1.6% 1,616 1,598 1.1%
Effective tax
rate 28.0% 30.0% 28.2% 30.0%
INCOME FROM CONTINUING
OPERATIONS $2,261 $2,022 11.8% $4,105 $3,730 10.1%
Net margin 9.5% 9.2% 9.0% 8.8%
DISCONTINUED OPERATIONS
Loss from discontinued
operations 1 0 0 0
NET INCOME $2,260 $2,022 11.8% $4,105 $3,730 10.0%
====== ====== ====== ======
EARNINGS/(LOSS)PER SHARE
OF COMMON STOCK:
ASSUMING DILUTION
CONTINUING
OPERATIONS $1.55 $1.30 19.2% $2.75 $2.37 16.0%
DISCONTINUED
OPERATIONS (0.00) (0.00) (0.00) (0.00)
------ ------ ------ ------
TOTAL $1.55 $1.30 19.2% $2.75 $2.37 16.0%
====== ====== ====== ======
BASIC
CONTINUING
OPERATIONS $1.57 $1.31 19.8% $2.80 $2.40 16.7%
DISCONTINUED
OPERATIONS (0.00) (0.00) (0.00) (0.00)
------ ------ ------ ------
TOTAL $1.57 $1.31 19.8% $2.80 $2.40 16.7%
====== ====== ====== ======
WEIGHTED-AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING (M's)
ASSUMING DILUTION 1,460.8 1,560.1 1,491.8 1,573.6
BASIC 1,437.2 1,538.1 1,468.3 1,551.3
INTERNATIONAL BUSINESS MACHINES CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Unaudited)
At At
(Dollars in millions) June 30, December 31, Percent
2007 2006 Change
-------- ----------- -------
ASSETS
Cash, cash equivalents,
and marketable securities $10,190 $10,657 -4.4%
Receivables - net, inventories,
prepaid expenses 32,103 34,003 -5.6%
Plant, rental machines,
and other property - net 14,479 14,440 0.3%
Investments and other assets 45,777 44,134 3.7%
-------- --------
TOTAL ASSETS $102,548 $103,234 -0.7%
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt $20,543 $8,902 130.8%
Long-term debt 14,179 13,780 2.9%
-------- --------
Total debt 34,721 22,682 53.1%
Accounts payable, taxes,
and accruals 27,541 31,189 -11.7%
Other liabilities 23,530 20,857 12.8%
-------- --------
TOTAL LIABILITIES 85,792 74,728 14.8%
STOCKHOLDERS' EQUITY 16,756 28,506 -41.2%
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $102,548 $103,234 -0.7%
======== ========
International Business Machines Corporation
Segment Data
(Unaudited)
(Dollars in millions)
SECOND QUARTER 2007
____________________________________________
Pre-tax
Income
(Loss)
from
-------- Revenue ------- Continuing Pre-tax
External Internal Total Operations Margin
-------- -------- ----- ---------- -------
Global Technology
Services $8,756 $409 $9,165 $788 8.6%
Y-T-Y Change 10.1% -8.9% 9.1% 0.1%
Global Business
Services 4,338 329 4,667 486 10.4%
Y-T-Y Change 10.1% -6.2% 8.8% 19.2%
Systems and
Technology 5,102 255 5,357 332 6.2%
Y-T-Y Change 1.8% -6.0% 1.4% 77.0%
Software 4,777 549 5,326 1,250 23.5%
Y-T-Y Change 12.7% 1.0% 11.3% 8.2%
Global Financing 597 341 938 332 35.4%
Y-T-Y Change 3.6% 0.9% 2.6% 4.2%
Total Reportable
Segments 23,571 1,883 25,453 3,187 12.5%
Y-T-Y Change 8.5% -3.6% 7.5% 11.6%
Eliminations / Other 201 (1,883) (1,681) (46)
Total IBM
Consolidated $23,772 $0 $23,772 $3,142 13.2%
Y-T-Y Change 8.6% 8.6% 8.8%
(Dollars in millions)
SECOND QUARTER 2006
____________________________________________
Pre-tax
Income
(Loss)
from
-------- Revenue ------- Continuing Pre-tax
External Internal Total Operations Margin
-------- -------- ----- ---------- -------
Global Technology
Services $7,955 $449 $8,404 $787 9.4%
Global Business
Services 3,939 351 4,290 407 9.5%
Systems and
Technology 5,014 271 5,286 187 3.5%
Software 4,241 543 4,784 1,156 24.2%
Global Financing 576 338 914 319 34.9%
Total Reportable
Segments 21,725 1,952 23,677 2,856 12.1%
Eliminations / Other 165 (1,952) (1,787) 32
Total IBM
Consolidated $21,890 $0 $21,890 $2,889 13.2%
International Business Machines Corporation
Segment Data
(Unaudited)
(Dollars in millions)
SIX MONTHS 2007
____________________________________________
Pre-tax
Income
(Loss)
from
-------- Revenue ------- Continuing Pre-tax
External Internal Total Operations Margin
-------- -------- ----- ---------- -------
Global Technology
Services $17,013 $834 $17,848 $1,469 8.2%
Y-T-Y Change 8.5% -7.3% 7.7% -10.0%
Global Business
Services 8,521 630 9,152 955 10.4%
Y-T-Y Change 9.4% -8.2% 8.0% 25.2%
Systems and
Technology 9,622 523 10,145 428 4.2%
Y-T-Y Change 2.0% -5.3% 1.6% 153.0%
Software 9,028 1,134 10,162 2,286 22.5%
Y-T-Y Change 10.8% 7.2% 10.4% 5.0%
Global Financing 1,211 689 1,901 706 37.1%
Y-T-Y Change 4.6% -1.8% 2.2% -3.7%
Total Reportable
Segments 45,397 3,810 49,207 5,844 11.9%
Y-T-Y Change 7.6% -2.3% 6.7% 6.8%
Eliminations / Other 404 (3,810) (3,406) (124)
Total IBM
Consolidated $45,801 $0 $45,801 $5,721 12.5%
Y-T-Y Change 7.6% 7.6% 7.4%
(Dollars in millions)
SIX MONTHS 2006
____________________________________________
Pre-tax
Income
(Loss)
from
-------- Revenue ------- Continuing Pre-tax
External Internal Total Operations Margin
-------- -------- ----- ---------- -------
Global Technology
Services $15,674 $900 $16,575 $1,631 9.8%
Global Business
Services 7,787 687 8,474 763 9.0%
Systems and
Technology 9,433 552 9,985 169 1.7%
Software 8,147 1,057 9,205 2,177 23.6%
Global Financing 1,158 702 1,860 733 39.4%
Total Reportable
Segments 42,200 3,898 46,098 5,473 11.9%
Eliminations / Other 349 (3,898) (3,549) (145)
Total IBM
Consolidated $42,549 $0 $42,549 $5,328 12.5%
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