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Quarterly earnings
Fourth-Quarter Earnings Announcement
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IBM REPORTS 2004 FOURTH-QUARTER AND FULL-YEAR RESULTS
ARMONK, N.Y., January 18, 2005 . . . IBM today announced fourth-quarter 2004 diluted earnings per common share of $1.81 from
continuing operations as reported, compared with diluted earnings of
$1.56 per share in the same period of 2003, an increase of 16
percent. Fourth-quarter income from continuing operations was $3.1
billion compared with $2.7 billion a year ago, an increase of 12
percent. Revenues from continuing operations for the fourth quarter
were $27.7 billion, up 7 percent compared with the fourth quarter of
2003 revenues of $25.9 billion (and up 18 percent sequentially from
$23.4 billion in the third quarter of this year).
Samuel J. Palmisano, IBM chairman and chief executive officer,
said: "IBM delivered a powerful fourth quarter, reflecting the
strength of our integrated business model. It was IBM's strongest
fourth quarter ever, with earnings exceeding $3 billion for the
first time. Our balance sheet remains strong with superior cash
flow, and we took share in key markets. We also returned $8.3
billion to our shareholders through dividends and stock buyback
during 2004, the most we have done in our history. The strategic
actions that IBM took last year have increased our focus on
delivering high value to enterprises. IBM is well positioned to
continue our mission of bringing together the best insight,
expertise and technologies to help our clients transform their
businesses."
Fourth-quarter revenue growth of 7 percent (3 percent, adjusting
for currency) was driven by growth across all geographies. In the
Americas, fourth-quarter revenues from continuing operations were
$11.1 billion, up 5 percent (4 percent, adjusting for currency) from
the 2003 period. Revenues from Europe/Middle East/Africa were $10.0
billion, an increase of 9 percent (1 percent, adjusting for
currency). Asia-Pacific revenues grew 6 percent (3 percent,
adjusting for currency) to $5.8 billion. OEM revenues increased 10
percent to $787 million compared with the fourth quarter of 2003.
Revenues grew in all of IBM's five industry sectors in the fourth
quarter led by the Communications sector, as well as growth in sales
to Small and Medium Businesses.
Revenues from Global Services, including maintenance, increased 10
percent (6 percent, adjusting for currency) to $12.6 billion in the
fourth quarter. Global Services revenues, excluding maintenance,
increased 11 percent (7 percent, adjusting for currency). IBM
signed services contracts totaling $12.7 billion and ended the
quarter with an estimated services backlog, including Strategic
Outsourcing, Business Consulting Services, Integrated Technology
Services and Maintenance, of $111 billion.
Hardware revenues from continuing operations increased 4 percent
(1 percent, adjusting for currency) to $9.5 billion in the fourth
quarter versus the fourth quarter of 2003. Revenues from the
Systems and Technology Group totaled $5.9 billion for the quarter,
up 5 percent on eServer revenue increases, including a 25 percent
increase in xSeries servers and a 15 percent increase in pSeries
UNIX servers. Revenues from the zSeries mainframe product decreased
compared with the prior-year quarter, which was particularly strong,
while MIPS (millions of instructions per second), an indicator of
total delivery of zSeries computing power, increased 6 percent.
Revenues for the iSeries midrange servers and Storage Systems
decreased primarily as a result of a transition to new products.
Revenues from OEM Technology increased. Personal Systems Group
increased revenues 2 percent to $3.5 billion. In the quarter, IBM
announced an agreement to sell the Personal Computer Division, a
unit of the Personal Systems Group.
Revenues from Software were $4.5 billion, an increase of 7 percent
(3 percent, adjusting for currency) compared with the fourth quarter
of 2003. Revenues from IBM's middleware brands, which include
WebSphere, DB2, Rational, Tivoli and Lotus products, were $3.7
billion, up 8 percent versus the fourth quarter of 2003. Operating
systems revenues increased 1 percent to $693 million compared with
the fourth quarter of 2003.
Revenues for WebSphere software, which facilitates customers'
ability to manage a wide variety of business processes using open
standards to interconnect applications, data and operating systems,
increased 18 percent. Revenues for Data Management increased 8
percent including revenues for DB2 database software, which
increased 15 percent. Revenues from Tivoli software (infrastructure
software that enables customers to centrally manage networks and
storage) increased 25 percent, and revenues for Lotus software,
which enables customers to communicate, collaborate and learn
effectively, increased 5 percent. Revenues from Rational
(comprehensive software development tools) increased 8 percent
compared with the fourth quarter of 2003.
Global Financing revenues declined 10 percent (13 percent,
adjusting for currency) in the fourth quarter to $657 million.
Revenues from the Enterprise Investments/Other area, which includes
industry-specific IT solutions such as product life-cycle management
software, increased 1 percent (down 2 percent, adjusting for
currency) to $365 million compared with the fourth quarter of 2003.
The company's total gross profit margin from continuing operations
was 39.2 percent in the 2004 fourth quarter, compared with 38.4
percent in the fourth quarter of 2003.
In the fourth quarter of 2004, total expense and other income from
continuing operations increased 6 percent compared with the prior-
year period to $6.5 billion. The company's selling, general and
administrative expense increased 9 percent to $5.3 billion.
Research, development and engineering expense increased 8 percent to
$1.5 billion. Intellectual property and custom development income
increased to $298 million compared with $281 million a year ago.
Other (income) and expense was $4 million of net income in the
fourth quarter of 2004 versus $124 million of net expense in the
same period last year.
IBM's effective tax rate from continuing operations in the fourth-quarter 2004 was 30.0 percent, the same as the fourth quarter of
2003.
Share repurchases totaled approximately $2.9 billion in the fourth
quarter. The weighted-average number of diluted common shares
outstanding in the quarter was 1.69 billion compared with 1.75
billion shares in the same period of 2003.
Full-Year 2004 Results
For the year ended December 31, 2004, income from continuing
operations, including the one-time $320 million pre-tax charge to
settle certain pension claims, was $8.4 billion compared with $7.6
billion for the same period of 2003, an increase of 11 percent.
Diluted earnings per common share from continuing operations was
$4.94 compared with $4.34 per diluted share for the 2003 period, an
increase of 14 percent. Revenues from continuing operations totaled
$96.5 billion, up 8 percent compared with 2003 revenues of $89.1
billion.
Full-year revenue growth of 8 percent (4 percent, adjusting for
currency) was driven by growth in all geographies. In the Americas,
full-year revenues were $40.1 billion, up 5 percent (4 percent,
adjusting for currency) from the 2003 period. Revenues from
Europe/Middle East/Africa were $32.1 billion, an increase of 10
percent (1 percent, adjusting for currency). Asia-Pacific revenues
were up 11 percent (5 percent, adjusting for currency) to $21.5
billion. OEM revenues increased 10 percent (9 percent, adjusting
for currency) to $2.9 billion.
Revenues in all five of IBM's industry sectors grew for the full
year, as did sales to Small and Medium Businesses.
Revenues from Global Services in 2004 totaled $46.4 billion, an
increase of 9 percent (4 percent, adjusting for currency) compared
with 2003. Hardware revenues were $31.2 billion, an increase of 10
percent (7 percent, adjusting for currency). Software revenues
totaled $15.1 billion, an increase of 5 percent (1 percent,
adjusting for currency). Global Financing revenues totaled $2.6
billion, a decrease of 8 percent (12 percent, adjusting for
currency). Revenues from the Enterprise Investments/Other area
increased 9 percent (5 percent, adjusting for currency) to $1.2
billion.
For total operations, net income, including a loss from
discontinued operations of $18 million, was $8.4 billion, or $4.93
per diluted common share, compared with 2003 net income of $7.6
billion, or $4.32 per diluted share, which included a loss from
discontinued operations of $30 million.
IBM ended 2004 with over $10 billion of cash on hand and low debt
levels for the non-financing business. The balance sheet remains
strong, and the company is well positioned to take advantage of
opportunities.
Share repurchases totaled approximately $7.3 billion in 2004. The
weighted-average number of diluted common shares outstanding in 2004
was 1.71 billion compared with 1.76 billion shares in the same
period of 2003. As of December 31, 2004, there were 1.65 billion
basic common shares outstanding.
Debt, including Global Financing, totaled $22.9 billion, compared
with $23.6 billion at year-end 2003. From a management segment
view, the non-global financing debt-to-capitalization ratio was 2.2
percent at the end of 2004, and Global Financing debt declined $944
million from year-end 2003 to a total of $22.3 billion, resulting in
a debt-to-equity ratio of 6.9 to 1.
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 U.S. Securities and Exchange Commission (SEC).
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:
The rationale for management's use of non-GAAP measures is
included as part of the supplementary materials presented within the
fourth-quarter earnings materials. These materials are available on
the IBM investor relations Web site at www.ibm.com/investor and will
be included in a subsequent filing of a Form 8-K with the SEC.
Conference Call and Webcast
IBM's regular quarterly earnings conference call is scheduled to
begin at 4:30 p.m. EST, today. Investors may participate by viewing
the Webcast at www.ibm.com/investor/4q04.
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INTERNATIONAL BUSINESS MACHINES CORPORATION
COMPARATIVE FINANCIAL RESULTS
(Dollars in millions except per share amounts)
(Unaudited except full-year 2003)
Three Months Twelve Months
Ended December 31, Ended December 31,
Percent Percent
2004 2003 Change 2004 2003 Change
------- ------- ------- ------- ------- -------
REVENUE
Global Services $12,605 $11,448 10.1% $46,423 $42,635 8.9%
Gross margin 25.1% 24.8% 24.9% 25.2%
Hardware 9,495 9,121 4.1% 31,154 28,239 10.3%
Gross margin 33.0% 31.0% 29.6% 27.8%
Software 4,549 4,250 7.0% 15,094 14,311 5.5%
Gross margin 89.0% 88.8% 87.3% 86.5%
Global Financing 657 734 -10.4% 2,608 2,826 -7.7%
Gross margin 59.7% 52.2% 60.0% 55.8%
Enterprise Investments/
Other 365 360 1.4% 1,224 1,120 9.3%
Gross margin 32.8% 41.7% 40.3% 43.4%
TOTAL REVENUE 27,671 25,913 6.8% 96,503 89,131 8.3%
GROSS PROFIT 10,852 9,975 8.8% 36,032 33,018 9.1%
Gross margin 39.2% 38.4% 37.3% 37.0%
EXPENSE AND OTHER INCOME
S,G&A 5,290 4,874 8.5% 19,384 17,852 8.6%
% of revenue 19.1% 18.8% 20.1% 20.0%
R,D&E 1,461 1,349 8.2% 5,673 5,077 11.7%
% of revenue 5.3% 5.2% 5.9% 5.7%
Intellectual property
and custom development
income (298) (281) 6.1% (1,169) (1,168) 0.2%
Other (income)
and expense (4) 124 nm (23) 238 nm
Interest expense 39 31 25.8% 139 145 -4.6%
TOTAL EXPENSE AND
OTHER INCOME 6,488 6,097 6.4% 24,004 22,144 8.4%
% of revenue 23.4% 23.5% 24.9% 24.8%
INCOME FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES 4,364 3,878 12.5% 12,028 10,874 10.6%
Pre-tax margin 15.8% 15.0% 12.5% 12.2%
Provision for
income taxes 1,309 1,162 12.7% 3,580 3,261 9.8%
Effective tax
rate 30.0% 30.0% 29.8% 30.0%
INCOME FROM CONTINUING
OPERATIONS $3,055 $2,716 12.5% $8,448 $7,613 11.0%
Net margin 11.0% 10.4% 8.8% 8.5%
DISCONTINUED OPERATIONS
Loss from discontinued
operations 15 7 18 30
NET INCOME $3,040 $2,709 12.2% $8,430 $7,583 11.2%
====== ====== ====== ======
EARNINGS/(LOSS)PER SHARE
OF COMMON STOCK:
ASSUMING DILUTION
CONTINUING
OPERATIONS $1.81 $1.56 16.0% $4.94 $4.34 13.8%
DISCONTINUED
OPERATIONS (0.01) (0.00) (0.01) (0.02)
------ ------ ------ ------
TOTAL $1.80 $1.55* 16.1% $4.93 $4.32 14.1%
====== ====== ====== ======
BASIC
CONTINUING
OPERATIONS $1.84 $1.59 15.7% $5.04 $4.42 14.0%
DISCONTINUED
OPERATIONS (0.01) (0.00) (0.01) (0.02)
------ ------ ------ ------
TOTAL $1.83 $1.59 15.1% $5.03 $4.40 14.3%
====== ====== ====== ======
WEIGHTED-AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING (M's)
ASSUMING
DILUTION 1,691.6 1,745.7 1,708.9 1,756.1
BASIC 1,659.0 1,708.5 1,675.0 1,721.6
nm - not meaningful
* Does not total due to rounding.
INTERNATIONAL BUSINESS MACHINES CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At At
(Dollars in millions) December 31, December 31, Percent
2004 2003* Change
(Unaudited)
----------- ----------- -------
ASSETS
Cash, cash equivalents,
and marketable securities $10,570 $7,647 38.2%
Receivables - net, inventories,
prepaid expenses 36,400 37,015 -1.7%
Plant, rental machines,
and other property - net 15,175 14,689 3.3%
Investments and other assets 47,038 45,106 4.3%
-------- --------
TOTAL ASSETS $109,183 $104,457 4.5%
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt $8,099 $6,646 21.9%
Long-term debt 14,828 16,986 -12.7%
-------- --------
Total debt 22,927 23,632 -3.0%
Accounts payable, taxes,
and accruals 31,699 31,254 1.4%
Other liabilities 24,810 21,707 14.3%
-------- --------
TOTAL LIABILITIES 79,436 76,593 3.7%
STOCKHOLDERS' EQUITY 29,747 27,864 6.8%
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $109,183 $104,457 4.5%
======== ========
* Reclassified to conform with 2004 presentation.
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
FOURTH QUARTER 2004 (Unaudited)
----------------------------------------------
Pre-tax
Income
(Loss)
From
(Dollars in millions) -------- Revenue --------- Continuing Pre-tax
External Internal Total Operations Margin
-------- -------- ------- ---------- -------
SEGMENTS
Global Services $12,605 $819 $13,424 $1,420 10.6%
% change 10.1% 8.9% 10.0% 24.8%
Systems and Technology
Group 5,869 274 6,143 1,075 17.5%
% change 4.9% -0.4% 4.7% -1.7%
Personal Systems Group 3,542 58 3,600 92 2.6%
% change 1.8% 20.8% 2.1% nm
Software 4,549 514 5,063 1,718 33.9%
% change 7.0% 10.3% 7.4% 17.6%
Global Financing 656 412 1,068 421 39.4%
% change -10.4% -4.6% -8.2% 31.2%
Enterprise Investments 379 2 381 (34) -8.9%
% change 11.5% 100.0% 11.7% 22.7%
TOTAL REPORTABLE SEGMENTS 27,600 2,079 29,679 4,692 15.8%
% change 6.8% 5.3% 6.7% 17.9%
Eliminations / Other 71 (2,079) (2,008) (328)
TOTAL IBM CONSOLIDATED $27,671 $0 $27,671 $4,364 15.8%
% change 6.8% 6.8% 12.5%
nm - not meaningful
FOURTH QUARTER 2003 (Unaudited)
----------------------------------------------
Pre-tax
Income
(Loss)
From
(Dollars in millions) -------- Revenue --------- Continuing Pre-tax
External Internal Total Operations Margin
-------- -------- ------- ---------- -------
SEGMENTS
Global Services $11,448 $752 $12,200 $1,138 9.3%
Systems and Technology
Group * 5,594 275 5,869 1,094 18.6%
Personal Systems Group 3,478 48 3,526 9 0.3%
Software 4,250 466 4,716 1,461 31.0%
Global Financing 732 432 1,164 321 27.6%
Enterprise Investments 340 1 341 (44) -12.9%
TOTAL REPORTABLE SEGMENTS 25,842 1,974 27,816 3,979 14.3%
Eliminations / Other 71 (1,974) (1,903) (101)
TOTAL IBM CONSOLIDATED $25,913 $0 $25,913 $3,878 15.0%
* 2003 Technology Group and Systems Group segment results have been
reclassified to conform with current reporting structure.
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
TWELVE MONTHS 2004 (Unaudited)
----------------------------------------------
Pre-tax
Income
(Loss)
From
(Dollars in millions) -------- Revenue --------- Continuing Pre-tax
External Internal Total Operations Margin
-------- -------- ------- ---------- -------
SEGMENTS
Global Services $46,423 $3,131 $49,554 $4,657 9.4%
% change 8.9% 10.4% 9.0% 3.5%
Systems and Technology
Group 17,916 1,051 18,967 2,265 11.9%
% change 8.8% 21.5% 9.4% 23.9%
Personal Systems Group 12,794 173 12,967 162 1.2%
% change 12.4% 1.2% 12.2% nm
Software 15,094 1,805 16,899 4,541 26.9%
% change 5.5% 11.9% 6.1% 19.2%
Global Financing 2,607 1,287 3,894 1,494 38.4%
% change -7.8% -1.0% -5.6% 26.4%
Enterprise Investments 1,180 8 1,188 (187) -15.7%
% change 10.8% 60.0% 11.0% 25.8%
TOTAL REPORTABLE SEGMENTS 96,014 7,455 103,469 12,932 12.5%
% change 8.3% 9.8% 8.4% 18.1%
Eliminations / Other 489 (7,455) (6,966) (904)
TOTAL IBM CONSOLIDATED $96,503 $0 $96,503 $12,028 12.5%
% change 8.3% 8.3% 10.6%
nm - not meaningful
TWELVE MONTHS 2003
----------------------------------------------
Pre-tax
Income
(Loss)
From
(Dollars in millions) -------- Revenue --------- Continuing Pre-tax
External Internal Total Operations Margin
-------- -------- ------- ---------- -------
SEGMENTS
Global Services $42,635 $2,837 $45,472 $4,499 9.9%
Systems and Technology
Group * 16,469 865 17,334 1,828 10.5%
Personal Systems Group 11,387 171 11,558 (118) -1.0%
Software 14,311 1,613 15,924 3,808 23.9%
Global Financing 2,827 1,300 4,127 1,182 28.6%
Enterprise Investments 1,065 5 1,070 (252) -23.6%
TOTAL REPORTABLE SEGMENTS 88,694 6,791 95,485 10,947 11.5%
Eliminations / Other 437 (6,791) (6,354) (73)
TOTAL IBM CONSOLIDATED $89,131 $0 $89,131 $10,874 12.2%
* 2003 Technology Group and Systems Group segment results have been
reclassified to conform with current reporting structure.
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