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Quarterly earnings
Fourth-Quarter Earnings Announcement
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IBM REPORTS 2005 FOURTH-QUARTER RESULTS
- Total diluted earnings per common share of $2.01, including $.10
per diluted share for a one-time pretax charge for pension
changes; without the charge, IBM diluted earnings per share were
$2.11, up 26 percent from fourth-quarter 2004.
- Total revenue of $24.4 billion, down 12 percent versus the fourth
quarter of 2004, up 3 percent without the impact of the divested
PC business and adjusting for currency.
ARMONK, N.Y., January 17, 2006 . . . IBM today announced fourth-quarter 2005 diluted earnings per common share of $2.01 from continuing
operations, including 10 cents per share for a one-time pretax
curtailment charge of $267 million relating to changes to the U.S.
defined benefit pension plans, effective January 1, 2008. Diluted
earnings per share for the fourth-quarter 2005 were $2.11, excluding
this one-time charge. Fourth-quarter income from continuing operations
was $3.2 billion, including the one-time charge for pension changes.
This compares with $2.8 billion in the fourth quarter of 2004. Without
the one-time charge, income from continuing operations of $3.4 billion
in the fourth quarter of 2005 increased $541 million, or 19 percent
versus the comparable period last year.
Total revenues for the fourth quarter of 2005 of $24.4 billion
decreased 12 percent (8 percent, adjusting for currency) from the
fourth quarter of 2004, which includes revenue from the divested PC
business. Excluding the PC revenue, revenues decreased 1 percent (up 3
percent, adjusting for currency) compared with the fourth quarter of
2004.
Samuel J. Palmisano, IBM chairman and chief executive officer, said:
"IBM finished the year with another strong quarter. We had solid
performance in systems, middleware and business transformation
services, which grew over 25 percent for the year. Our cash position
remains very strong, and we saw impressive growth in important parts of
our business. We continued to make gains in emerging markets and in
important sectors such as healthcare and transportation, and our
microprocessors are powering the fast-growing home entertainment
market.
"Gross profit margin improvement in the quarter of more than 5
points demonstrates the benefit of our strategic focus on more
profitable, high-value segments of the IT industry, as well as our
continued emphasis on productivity and global integration. IBM's
business model is much more balanced and profitable than it was just a
few years ago.
"IBM is ready for 2006, as we continue to deliver on our agenda of
driving innovation and transformation for our clients and their
businesses."
Fourth-quarter revenue was a decrease of 12 percent (up 3 percent,
adjusting for currency and the divested PC business). From a
geographic perspective, the Americas fourth-quarter revenues were $10.5
billion, down 6 percent as reported (up 3 percent, adjusting for
currency and PCs) from the 2004 period. Revenues from Europe/Middle
East/Africa were $8.3 billion, down 16 percent (up 2 percent, adjusting
for currency and PCs). Asia-Pacific revenues decreased 22 percent
(down 3 percent, adjusting for currency and PCs) to $4.5 billion. OEM
revenues were $1.1 billion, up 35 percent compared with the 2004 fourth
quarter.
Revenues from Global Services, including maintenance, decreased 5
percent (1 percent, adjusting for currency) to $12.0 billion in the
fourth quarter. IBM signed services contracts totaling $11.5 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 decreased 27 percent (25 percent, adjusting for
currency) to $6.9 billion in the fourth-quarter 2005 compared to $9.5
billion in the year-ago period, which includes revenue from the
divested PC business. Hardware revenues without the PC business
increased 6 percent (9 percent, adjusting for currency).
Hardware revenues for the Systems and Technology Group totaled $6.8
billion for the quarter, up 6 percent. Revenues from the zSeries
mainframe product increased 5 percent compared with the year-ago
period. Total delivery of zSeries computing power, which is measured
in MIPS (millions of instructions per second), increased 28 percent.
Revenues from the pSeries UNIX servers increased 4 percent; however,
revenues from the iSeries midrange servers decreased 18 percent and
xSeries servers were flat. In addition to the eServers, revenues from
Storage Systems increased 24 percent and Microelectronics increased 48
percent.
Revenues from Software were $4.6 billion, flat (up 3 percent,
adjusting for currency) compared with the fourth quarter of 2004.
Revenues from IBM's middleware brands, which include WebSphere, DB2,
Tivoli, Lotus and Rational products, were $3.7 billion, up 1 percent
versus the fourth quarter of 2004. Operating systems revenues
decreased 6 percent to $656 million 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 4 percent. Revenues for Information
Management software, which enables clients to leverage information on
demand, increased 4 percent. Revenues from Tivoli software,
infrastructure software that enables customers to centrally manage
networks and storage, increased 3 percent, and revenues for Lotus
software, which allows collaborating and messaging by customers in real-time communication and knowledge management, increased 2 percent.
Revenues from Rational software, integrated tools to improve the
processes of software development, decreased 2 percent compared with
the year-ago quarter.
IBM expects to hold or gain market share for the fourth quarter in
each of the five key middleware brands.
Global Financing revenues declined 8 percent (6 percent, adjusting
for currency) in the fourth quarter to $605 million. Revenues from the
Enterprise Investments/Other area, which includes industry-specific IT
solutions such as product life-cycle management software, increased 5
percent (11 percent, adjusting for currency) to $383 million versus the
prior-year fourth quarter.
The company's total gross profit margin was 44.1 percent in the 2005
fourth quarter compared with 38.8 percent in the 2004 period, which
includes the divested PC business. Excluding the PC business, the
fourth-quarter 2004 gross profit margin was 41.9 percent.
Total expense and other income decreased 7 percent to $6.2 billion
compared with the prior-year period, and decreased 11 percent without
the current-period pension charge. SG&A expense of $5.3 billion
decreased 3 percent year over year. Excluding the current-year pension
charge, SG&A expense decreased 8 percent principally as a result of the
sale of the PC business. RD&E expense was $1.5 billion, a decrease of
4 percent compared with the year-ago period. Intellectual property and
custom development income decreased to $228 million compared with $298
million a year ago. Other (income) and expense was $334 million of
income in the fourth quarter of 2005, versus $4 million of income in
the same period last year. The year-over-year improvement includes
$182 million of real estate gains, compared to the previous estimate of
$75 million as set forth in the Company's SEC Form 10-Q for the quarter
ended September 30, 2005. The improvement also includes gains from
foreign currency hedging transactions of approximately $150 million.
IBM's effective tax rate in the fourth-quarter 2005 was 29.5
percent, compared with 29.8 percent in the fourth quarter of 2004.
Excluding the one-time item, the fourth-quarter 2005 tax rate was 30.0
percent compared with 29.8 percent in the year-ago quarter.
Share repurchases totaled approximately $1.0 billion in the fourth
quarter. The weighted-average number of diluted common shares
outstanding in the fourth-quarter 2005 was 1.60 billion compared with
1.69 billion shares in the same period of 2004.
In the fourth quarter, IBM recorded a $36 million charge, net of
tax, to reflect the cumulative effect of a change in accounting
principle related to the adoption of FASB Interpretation No. 47 (FIN
47), "Accounting for Conditional Asset Retirement Obligations - an
interpretation of FASB Statement No. 143."
Full-Year 2005 Results
Income from continuing operations for the year ended December 31,
2005 was $8.0 billion compared with $7.5 billion for the same period of
2004, including the following nonrecurring items in the respective
periods:
- 2005:
- pretax curtailment charge of $267 million relating to changes
to the U.S. defined benefit pension plans, effective
January 1, 2008,
- charge of $525 million for taxes in connection with the
repatriation of foreign earnings under the American Jobs
Creation Act of 2004,
- incremental pretax charges of $1.7 billion for restructuring,
- gain of $1.1 billion before tax on the sale of the PC business,
- other income of $775 million before tax due to a settlement
agreement entered into with Microsoft.
- 2004:
- pretax charge of $320 million for the partial settlement of legal
claims against IBM's pension plan.
Diluted earnings per share from continuing operations for 2005 were
$4.91 compared with $4.39 per diluted share for the 2004 period.
Excluding these nonrecurring items from both periods, diluted earnings
per share were $5.32 compared with diluted earnings per share of $4.50
for the 2004 period, an increase of 18 percent. Revenues from
continuing operations for 2005, which includes PC revenues of $2.9
billion for the first four months of 2005 only, totaled $91.1 billion,
down 5 percent (6 percent, adjusting for currency) compared with $96.3
billion for 2004. Without the revenues from the divested PC business,
revenues totaled $88.3 billion, up 3 percent (3 percent, adjusting for
currency) compared with the 2004 period.
Full-year revenue was a decrease of 5 percent (up 3 percent,
adjusting for currency and the divested PC business). From a
geographic perspective, the Americas full-year revenues were $38.8
billion, down 3 percent as reported (up 4 percent, adjusting for
currency and PCs) from the 2004 period. Revenues from Europe/Middle
East/Africa were $30.4 billion, a decrease of 5 percent (up 4 percent,
adjusting for currency and PCs). Asia-Pacific revenues were down 12
percent (1 percent, adjusting for currency and PCs) to $18.6 billion.
OEM revenues increased 13 percent to $3.3 billion.
Without the PC business, revenues in four of IBM's five industry
sectors grew for the full year, as did sales to Small and Medium
Businesses.
Revenues from Global Services in 2005 totaled $47.4 billion, an
increase of 2 percent (2 percent, adjusting for currency) compared with
2004. Hardware revenues were $24.3 billion, a decrease of 22 percent
(up 5 percent, adjusting for currency and PCs). Software revenues
totaled $15.8 billion, an increase of 4 percent (4 percent, adjusting
for currency). Global Financing revenues totaled $2.4 billion, a
decrease of 8 percent (8 percent, adjusting for currency). Revenues
from the Enterprise Investments/Other area increased 7 percent (7
percent, adjusting for currency) to $1.3 billion.
IBM's revenues for Business Performance Transformation Services grew
28 percent for the full year.
For total operations, net income for 2005, including a loss from
discontinued operations of $24 million and the charge for the
cumulative effect of the FIN 47 accounting change of $36 million, was
$7.9 billion, or $4.87 per diluted share, compared with 2004 net income
of $7.5 billion, or $4.38 per diluted share, which included a loss from
discontinued operations of $18 million.
IBM ended 2005 with $13.7 billion of cash on hand. The balance
sheet remains strong, and the company is well positioned to take
advantage of opportunities.
Share repurchases totaled approximately $7.7 billion in 2005. The
weighted-average number of diluted common shares outstanding in 2005
was 1.63 billion compared with 1.71 billion shares in 2004. As of
December 31, 2005, there were 1.57 billion basic common shares
outstanding.
Debt, including Global Financing, totaled $22.6 billion, compared
with $22.9 billion at year-end 2004. From a management segment view,
the non-global financing debt-to-capitalization ratio was 6.7 percent
at the end of 2005, and Global Financing debt declined $1.8 billion
from year-end 2004 to a total of $20.5 billion, resulting in a debt-to-equity ratio of 6.7 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:
- IBM results:
- without nonrecurring items,
- without PC business,
- adjusting for currency.
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 Form 8-K.
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/4q05. Presentation charts will be
available on the Web site prior to the Webcast.
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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
2005 2004* Change 2005 2004* Change
------- ------- ------- ------- ------- -------
REVENUE
Global Services $11,989 $12,605 -4.9% $47,357 $46,213 2.5%
Gross margin 27.4% 24.3% 25.9% 24.2%
Hardware 6,888 9,495 -27.4% 24,314 31,154 -22.0%
Gross margin 42.1% 32.9% 35.1% 29.5%
Software 4,562 4,549 0.3% 15,753 15,094 4.4%
Gross margin 89.0% 88.9% 87.5% 87.2%
Global Financing 605 657 -8.0% 2,407 2,608 -7.7%
Gross margin 57.4% 59.7% 54.7% 59.9%
Enterprise Investments/
Other 383 365 4.9% 1,303 1,224 6.5%
Gross margin 46.2% 32.8% 46.5% 40.2%
TOTAL REVENUE 24,427 27,671 -11.7% 91,134 96,293 -5.4%
GROSS PROFIT 10,765 10,738 0.3% 36,532 35,569 2.7%
Gross margin 44.1% 38.8% 40.1% 36.9%
EXPENSE AND OTHER INCOME
S,G&A 5,252 5,439 -3.4% 21,314 20,079 6.1%
% of revenue 21.5% 19.7% 23.4% 20.9%
R,D&E 1,459 1,514 -3.6% 5,842 5,874 -0.6%
% of revenue 6.0% 5.5% 6.4% 6.1%
Intellectual property
and custom development
income (228) (298) -23.7% (948) (1,169) -19.0%
Other (income)
and expense (334) (4) nm (2,122) (23) nm
Interest expense 48 39 22.5% 220 139 58.6%
TOTAL EXPENSE AND
OTHER INCOME 6,197 6,690 -7.4% 24,306 24,900 -2.4%
% of revenue 25.4% 24.2% 26.7% 25.9%
INCOME FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES 4,568 4,048 12.8% 12,226 10,669 14.6%
Pretax margin 18.7% 14.6% 13.4% 11.1%
Provision for
income taxes 1,348 1,206 11.6% 4,232 3,172 33.4%
Effective tax
rate 29.5% 29.8% 34.6% 29.7%
INCOME FROM CONTINUING
OPERATIONS 3,220 2,842 13.3% 7,994 7,497 6.6%
Net margin 13.2% 10.3% 8.8% 7.8%
DISCONTINUED OPERATIONS
Income/(loss) from
discontinued opera-
tions 3 (15) (24) (18)
CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING
PRINCIPLE** (36) 0 (36) 0
NET INCOME $3,187 $2,827 12.7% $7,934 $7,479 6.1%
====== ====== ====== ======
EARNINGS/(LOSS)PER SHARE
OF COMMON STOCK:
ASSUMING DILUTION
CONTINUING
OPERATIONS $2.01 $1.68 19.6% $4.91 $4.39 11.8%
DISCONTINUED
OPERATIONS 0.00 (0.01) (0.01) (0.01)
CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING
PRINCIPLE (0.02) 0.00 (0.02) 0.00
------ ------ ------ ------
TOTAL $1.99 $1.67 19.2% 4.87# $4.38 11.2%
====== ====== ====== ======
BASIC
CONTINUING
OPERATIONS $2.04 $1.71 19.3% $4.99 $4.48 11.4%
DISCONTINUED
OPERATIONS 0.00 (0.01) (0.02) (0.01)
CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING
PRINCIPLE (0.02) 0.00 (0.02) 0.00
------ ------ ------ ------
TOTAL $2.02 $1.70 18.8% 4.96# $4.47 11.0%
====== ====== ====== ======
WEIGHTED-AVERAGE NUMBER OF
COMMON SHARES OUT-
STANDING (M's)
ASSUMING DILUTION 1,604.8 1,692.1 1,627.6 1,707.2
BASIC 1,578.5 1,659.0 1,600.6 1,675.0
* Restated 2004 financial results to include the impact of share-based
compensation expense.
** Change in accounting principle related to the adoption of FASB
Interpretation No. 47,"Accounting for Conditional Asset Retirement
Obligations - an interpretation of FASB Statement No. 143."
# Does not total due to rounding.
nm - not meaningful
INTERNATIONAL BUSINESS MACHINES CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At At
(Dollars in millions) December 31, December 31, Percent
2005 2004* Change
----------- ----------- -------
ASSETS
Cash, cash equivalents,
and marketable securities $13,686 $10,570 29.5%
Receivables - net, inventories,
prepaid expenses 31,975 36,573 -12.6%
Plant, rental machines,
and other property - net 13,756 15,175 -9.4%
Investments and other assets 46,331 48,685 -4.8%
-------- --------
TOTAL ASSETS $105,748 $111,003 -4.7%
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt $7,216 $8,099 -10.9%
Long-term debt 15,425 14,828 4.0%
-------- --------
Total debt 22,641 22,927 -1.2%
Accounts payable, taxes,
and accruals 27,936 31,687 -11.8%
Other liabilities 22,073 24,701 -10.6%
-------- --------
TOTAL LIABILITIES 72,650 79,315 -8.4%
STOCKHOLDERS' EQUITY 33,098 31,688 4.4%
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $105,748 $111,003 -4.7%
======== ========
* Restated 2004 financial position to include the impact of share-based
compensation expense.
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
FOURTH QUARTER 2005
----------------------------------------------
Pretax
Income
(Loss)
From
(Dollars in millions) --------- Revenue -------- Continuing Pretax
External Internal Total Operations Margin
-------- -------- ------- ---------- -------
SEGMENTS
Global Services $11,989 $647 $12,636 $1,506 11.9%
% change -4.9% -21.0% -5.9% 18.5%
Systems and Technology
Group 6,849 355 7,204 1,229 17.1%
% change 6.3% 20.7% 6.9% 16.1%
Software 4,562 554 5,116 1,934 37.8%
% change 0.3% 7.8% 1.0% 18.9%
Global Financing 603 493 1,096 491 44.8%
% change -8.1% 19.7% 2.6% 18.9%
Enterprise Investments 366 1 367 (14) -3.8%
% change -3.4% -50.0% -3.7% 61.1%
Personal Computing
Division 0 0 0 0 0.0%
TOTAL REPORTABLE SEGMENTS 24,369 2,050 26,419 5,146 19.5%
% change -11.7% -1.4% -11.0% 17.8%
Eliminations / Other 58 (2,050) (1,992) (578)
TOTAL IBM CONSOLIDATED $24,427 $0 $24,427 $4,568 18.7%
% change -11.7% -11.7% 12.8%
nm - not meaningful
FOURTH QUARTER 2004**
----------------------------------------------
Pretax
Income
(Loss)
From
(Dollars in millions) --------- Revenue -------- Continuing Pretax
External Internal Total Operations Margin
-------- -------- ------ ---------- -------
SEGMENTS
Global Services $12,605 $819 $13,424 $1,271 9.5%
Systems and Technology
Group* 6,443 294 6,737 1,059 15.7%
Software 4,549 514 5,063 1,626 32.1%
Global Financing 656 412 1,068 413 38.7%
Enterprise Investments 379 2 381 (36) -9.4%
Personal Computing
Division 2,968 38 3,006 36 1.2%
TOTAL REPORTABLE SEGMENTS 27,600 2,079 29,679 4,369 14.7%
Eliminations / Other 71 (2,079) (2,008) (321)
TOTAL IBM CONSOLIDATED $27,671 $0 $27,671 $4,048 14.6%
* Systems and Technology Group segment results have been reclassified
to conform with current reporting structure.
** Restated 2004 financial results to include the impact of share-based
compensation expense.
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
TWELVE MONTHS 2005
----------------------------------------------
Pretax
Income
(Loss)
From
(Dollars in millions) --------- Revenue -------- Continuing Pretax
External Internal Total Operations Margin
-------- -------- ------ ---------- -------
SEGMENTS
Global Services $47,357 $2,891 $50,248 $3,382 6.7%
% change 2.5% -7.7% 1.8% -15.8%
Systems and Technology
Group 20,981 1,118 22,099 1,966 8.9%
% change 5.0% 2.1% 4.9% -8.1%
Software 15,753 1,970 17,723 4,882 27.5%
% change 4.4% 9.1% 4.9% 18.0%
Global Financing 2,401 1,506 3,907 1,583 40.5%
% change -7.9% 17.0% 0.3% 8.6%
Enterprise Investments 1,203 8 1,211 (145) -12.0%
% change 1.9% 0.0% 1.9% 27.1%
Personal Computing
Division 2,876 33 2,909 (165) nm
% change nm nm nm nm
TOTAL REPORTABLE SEGMENTS 90,571 7,526 98,097 11,503 11.7%
% change -5.5% 1.0% -5.0% -0.4%
Eliminations / Other 563 (7,526) (6,963) 723
TOTAL IBM CONSOLIDATED $91,134 $0 $91,134 $12,226 13.4%
% change -5.4% -5.4% 14.6%
nm - not meaningful
TWELVE MONTHS 2004**
----------------------------------------------
Pretax
Income
(Loss)
From
(Dollars in millions) --------- Revenue -------- Continuing Pretax
External Internal Total Operations Margin
-------- -------- ------- ---------- -------
SEGMENTS
Global Services $46,213 $3,131 $49,344 $4,018 8.1%
Systems and Technology
Group* 19,973 1,095 21,068 2,140 10.2%
Software 15,094 1,805 16,899 4,138 24.5%
Global Financing 2,607 1,287 3,894 1,458 37.4%
Enterprise Investments 1,180 8 1,188 (199) -16.8%
Personal Computing
Division 10,737 129 10,866 (10) -0.1%
TOTAL REPORTABLE SEGMENTS 95,804 7,455 103,259 11,545 11.2%
Eliminations / Other 489 (7,455) (6,966) (876)
TOTAL IBM CONSOLIDATED $96,293 $0 $96,293 $10,669 11.1%
* Systems and Technology Group segment results have been reclassified
to conform with current reporting structure.
** Restated 2004 financial results to include the impact of share-based
compensation expense.
INTERNATIONAL BUSINESS MACHINES CORPORATION
FINANCIAL SUMMARY - SUPPLEMENTAL DATA
(Dollars in millions except per share amounts)
Three Months Ended December 31, 2005
As Reported Charge* Excl. Charge
4Q'05 Yr/Yr 4Q'05 4Q'05 Yr/Yr
----- ----- ------ ----- -----
Continuing Operations
Revenue $24,427 -11.7% $24,427 -11.7%
Gross profit 10,765 0.3% 10,765 0.3%
Gross profit margin 44.1% 44.1%
Total expense and
other income 6,197 -7.4% $267 5,930 -11.3%
Expense to revenue 25.4% 24.3%
Income from continuing
operations before
income taxes 4,568 12.8% (267) 4,835 19.4%
Pretax margin 18.7% 19.8%
Provision for
income taxes 1,348 (104) 1,452
Effective tax rate 29.5% 30.0%
Income from continuing
operations $3,220 13.3% ($163) $3,383 19.1%
Net margin 13.2% 13.9%
EARNINGS PER SHARE
OF COMMON STOCK:
Assuming dilution $2.01 19.6% ($0.10) $2.11 25.6%
* One-time, pretax curtailment charge of $267 million relating to changes
to the U.S. defined benefit pension plans, effective January 1, 2008.
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