IBM REPORTS 1996 SECOND-QUARTER RESULTS
ARMONK, N.Y., July 25, 1996 . . . IBM today announced second-quarter 1996 net earnings of $1.3 billion, or $2.51 per common share, compared with net earnings of $1.7 billion, or $2.97 per common share, in the second quarter of 1995. Second quarter 1996 revenues were $18.2 billion, an increase of 4 percent from the second quarter of last year. Louis V. Gerstner, Jr., IBM chairman and chief executive officer, said: "This was a tough quarter, as we had expected. Our results were largely affected by a few short-term factors, particularly a sharp drop in memory prices and currency.
"However, the fact that we earned $2.6 billion in the first half of 1996, even with these short-term issues, speaks to the resiliency of IBM. But what really gives us a sense of optimism are the many manifestations in the second quarter that our long-term strategies are working.
"Simply put, our traditional businesses are continuing to re-invent themselves and our newer businesses are showing great strength," Mr. Gerstner said. "We saw excellent results across our server families: AS/400 revenues increased; our Unix processors, led by the high-end SP2, had an exceptional quarter; and demand remained strong for our System/390 products. This was the second quarter in a row of solid performance by our PC Company.
"At the same time, we continued to make significant progress in services and software growth areas. Our services revenues grew by 23 percent and we closed nearly $4 billion in new services contracts in the quarter. We had outstanding results from our most recent major acquisition, Tivoli Systems. We announced the Lotus Notes 'Domino' product, which establishes Notes as the leading platform for server-based intranet solutions. Second quarter shipments of Lotus Notes seats nearly doubled compared with the same period of last year. It has been one year since we acquired Lotus. Since then, Notes seats have increased from 2.2 million to 6.3 million," Mr. Gerstner said. "I'm also delighted with our improved revenue results from North America and, measured in local currencies, our results from Asia-Pacific. Europe, however, remained sluggish."
Revenues from North America increased 11 percent from the second quarter of last year to $7.8 billion. Revenues from Europe/Middle East/Africa declined 2 percent year over year to $6 billion. Asia-Pacific revenues were $3.6 billion, essentially flat with the same period of 1995, while revenues from Latin America grew 6 percent to $786 million.
Currency had an approximately 5-percentage-point negative effect on the company's overall revenues in the second quarter. Excluding the effects of currency, Asia-Pacific revenues grew 19 percent and Latin America revenues increased 6 percent, year over year, while European revenues climbed 2 percent.
Hardware sales totaled $8.6 billion, a decline of 1 percent from the second quarter of last year. Personal computer revenues increased within all market segments. RISC System/6000 and AS/400 revenues also grew, as did networking hardware revenues.
System/390, semiconductor and storage revenues declined, principally as a result of year-over-year price reductions.
IBM took significant steps in the second quarter to strengthen the competitiveness of its storage business. Specifically, IBM signed a worldwide OEM agreement with Storage Technology Corp. that provides customers with a wider range of storage products. IBM also introduced the world's first magnetic disk drives that exceed one billion bits of data in a square inch of disk space.
Services revenues grew 23 percent to $3.7 billion. New services contracts signed during the quarter included a 10-year, multi-billion dollar contract with Ameritech and a $533 million agreement with Washington Mutual, a financial services company with operations in five western states.
Software revenues climbed 4 percent to $3.2 billion from the second quarter of 1995. During the quarter, IBM announced the availability of Net.Commerce, software that helps businesses create 'virtual storefronts' on the Internet, and Cryptolopes (TM), secure 'electronic envelopes' that can be used to distribute copyrighted information over the Internet.
Maintenance revenues fell 7 percent year over year to $1.8 billion, while rentals and financing revenues increased 5 percent to $924 million.
The total gross profit margin was 39.5 percent in the second quarter compared with 43.5 percent during the same period of 1995.
Total expenses grew 4 percent compared with last year's second quarter, primarily because of increased spending for acquisitions and investments in IBM's industry-specific business units. Excluding these types of investments, total expenses would have decreased approximately 8 percent year over year.
The company's tax rate in the second quarter was 38.1 percent compared with 39.2 percent in the second quarter of 1995.
Since December 31, 1995, "core" debt (debt in support of operations, excluding customer financing) increased $325 million to $2.2 billion. During the same period, customer financing debt increased $1.2 billion to $20.9 billion.
IBM spent approximately $1.3 billion for common share repurchases in the second quarter. The average number of common shares outstanding in the quarter was 533.9 million compared with 575.4 million during the same period of last year.
Net earnings for the six months ended June 30, 1996 were $2.6 billion, or $4.72 per common share, excluding charges associated with write-offs of research and development related to acquisitions in the first quarter of 1996. This compares with earnings of $3 billion in the first six months of 1995, or $5.09 per common share. Revenues for the six months ended June 30, 1996 were $34.7 billion, an increase of 4 percent from the prior year's $33.3 billion.
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.
INTERNATIONAL BUSINESS MACHINES CORPORATION
SUPPLEMENTAL SCHEDULE - COMPARATIVE FINANCIAL RESULTS
(EXCLUDES EFFECTS OF SOFTWARE ACQUISITIONS
IN THE FIRST QUARTER 1996)*
(Unaudited; Dollars in millions except per share amounts)
Three Months Six Months
Ended June 30 Ended June 30
Percent Percent
1996 1995 Change 1996 1995 Change
------- ------- ------- ------- ------- -------
Revenue:
Hardware sales $8,576 $8,659 -1.0% $16,284 $16,386 -0.6%
Gross margin 33.4% 40.1% 34.2% 39.1%
Services 3,734 3,041 22.8% 6,932 5,486 26.4%
Gross margin 20.8% 21.5% 20.1% 20.5%
Software 3,195 3,072 4.0% 6,232 5,945 4.8%
Gross margin 68.4% 65.3% 69.2% 65.2%
Maintenance 1,754 1,877 -6.5% 3,503 3,698 -5.3%
Gross margin 47.8% 53.8% 47.8% 52.2%
Rentals
and financing 924 882 4.7% 1,791 1,751 2.3%
Gross margin 57.4% 55.7% 56.6% 55.0%
Total revenue 18,183 17,531 3.7% 34,742 33,266 4.4%
Gross profit 7,191 7,631 -5.8% 13,960 14,295 -2.3%
Gross margin 39.5% 43.5% 40.2% 43.0%
Operating expenses:
S,G&A 3,889 3,883 0.2% 7,586 7,516 0.9%
% of revenue 21.4% 22.2% 21.8% 22.6%
R,D&E (1) 1,116 974 14.6% 2,207 1,887 17.0%
% of revenue 6.1% 5.6% 6.4% 5.7%
Operating income 2,186 2,774 -21.2% 4,167 4,892 -14.8%
Other income 193 238 -18.8% 343 484 -29.2%
Interest expense 205 188 8.8% 354 368 -3.9%
Earnings before
income taxes 2,174 2,824 -23.0% 4,156 5,008 -17.0%
Pre-tax margin 12.0% 16.1% 12.0% 15.1%
Provision for
income taxes 827 1,108 -25.3% 1,600 2,003 -20.1%
Effective tax
rate 38.1% 39.2% 38.5% 40.0%
Net earnings $1,347 $1,716 -21.5% $2,556 $3,005 -14.9%
Net margin 7.4% 9.8% 7.4% 9.0%
Preferred stock
dividends and trans-
action costs 5 5 10 52
Net earnings
applicable to common
shareholders $1,342 $1,711 -21.6% $2,546 $2,953 -13.8%
====== ====== ====== ======
Net earnings per
share of common
stock $2.51 $2.97 -15.4% $4.72 $5.09 -7.3%
====== ====== ====== ======
Average number of
common shares out-
standing (M's) 533.9 575.4 539.1 580.3
* Supplemental information provided for comparative purposes:
(1) Six months 1996 excludes non-recurring, non-tax deductible
charges of $435 million($.80 per common share) for purchased
in-process research and development in connection with the
acquisitions of Tivoli Systems Inc. and Object Technology
International Inc.
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
1996 1995 Change 1996 1995 Change
------- ------- ------- ------- ------- -------
Revenue:
Hardware sales $8,576 $8,659 -1.0% $16,284 $16,386 -0.6%
Gross margin 33.4% 40.1% 34.2% 39.1%
Services 3,734 3,041 22.8% 6,932 5,486 26.4%
Gross margin 20.8% 21.5% 20.1% 20.5%
Software 3,195 3,072 4.0% 6,232 5,945 4.8%
Gross margin 68.4% 65.3% 69.2% 65.2%
Maintenance 1,754 1,877 -6.5% 3,503 3,698 -5.3%
Gross margin 47.8% 53.8% 47.8% 52.2%
Rentals
and financing 924 882 4.7% 1,791 1,751 2.3%
Gross margin 57.4% 55.7% 56.6% 55.0%
Total revenue 18,183 17,531 3.7% 34,742 33,266 4.4%
Gross profit 7,191 7,631 -5.8% 13,960 14,295 -2.3%
Gross margin 39.5% 43.5% 40.2% 43.0%
Operating expenses:
S,G&A 3,889 3,883 0.2% 7,586 7,516 0.9%
% of revenue 21.4% 22.2% 21.8% 22.6%
R,D&E (1) 1,116 974 14.6% 2,642 1,887 40.0%
% of revenue 6.1% 5.6% 7.6% 5.7%
Operating income 2,186 2,774 -21.2% 3,732 4,892 -23.7%
Other income 193 238 -18.8% 343 484 -29.2%
Interest expense 205 188 8.8% 354 368 -3.9%
Earnings before
income taxes 2,174 2,824 -23.0% 3,721 5,008 -25.7%
Pre-tax margin 12.0% 16.1% 10.7% 15.1%
Provision for
income taxes 827 1,108 -25.3% 1,600 2,003 -20.1%
Effective tax
rate 38.1% 39.2% 43.0% 40.0%
Net earnings $1,347 $1,716 -21.5% $2,121 $3,005 -29.4%
Net margin 7.4% 9.8% 6.1% 9.0%
Preferred stock
dividends and trans-
action costs 5 5 10 52
Net earnings
applicable to common
shareholders $1,342 $1,711 -21.6% $2,111 $2,953 -28.5%
====== ====== ====== ======
Net earnings per
share of common
stock $2.51 $2.97 -15.4% $3.92 $5.09 -23.0%
====== ====== ====== ======
Average number of
common shares out-
standing (M's) 533.9 575.4 539.1 580.3
(1) Six months 1996 includes non-recurring, non-tax deductible
charges of $435 million($.80 per common share) for purchased
in-process research and development in connection with the
acquisitions of Tivoli Systems Inc. and Object Technology
International Inc.
INTERNATIONAL BUSINESS MACHINES CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Unaudited; Dollars in millions)
At At
June 30 December 31 Percent
1996 1995 Change
--------- ----------- -------
Assets:
Cash, cash equivalents,
and marketable securities $6,377 $7,701 -17.2%
Receivable - net, inventories,
and prepaid expenses 32,559 32,990 -1.3%
Plant, rental machines,
and other property - net 16,337 16,579 -1.5%
Investments and other assets 22,201 23,022 -3.6%
-------- --------
Total Assets $77,474 $80,292 -3.5%
======== ========
Liabilities and Stockholders' Equity:
Short-term debt $13,580 $11,569 17.4%
Long-term debt 9,478 10,060 -5.8%
-------- --------
Total debt 23,058 21,629 6.6%
Accounts payable, taxes,
and accruals 17,049 20,079 -15.1%
Other liabilities and
deferred income taxes 15,839 16,161 -2.0%
-------- --------
Total liabilities 55,946 57,869 -3.3%
Stockholders' equity 21,528 22,423 -4.0%
-------- --------
Total Liabilities and
Stockholders' Equity $77,474 $80,292 -3.5%
======== ========
|
