IBM ANNOUNCES 1995 THIRD QUARTER RESULTS
ARMONK, N.Y., October 17, 1995 . . . IBM today announced third-quarter 1995 earnings of $1.3 billion, or $2.30 per common share, excluding a one-time charge of approximately $1.8 billion associated with IBM's recent acquisition of the Lotus Development Corp. This compares to earnings of $710 million, or $1.18 per common share, in the third quarter of last year. Including the Lotus charge, IBM posted a loss of $538 million, or $.96 per common share, in the third quarter. Third-quarter revenues totaled $16.8 billion, an increase of 9 percent from the same period of 1994.
Louis V. Gerstner, Jr., IBM chairman and chief executive officer, said: "Our hardware sales were disappointing in the third quarter, largely due to supply imbalances in System/390 servers and high-end storage products.
"However, it's encouraging that, given the breadth of our product line, we were able to report good results overall. Our services and OEM revenues continued to grow strongly, our expenses declined again and we completed the quarter with about $7 billion in cash. Software sales also continued to show solid growth. I'm particularly pleased with the product performance from Lotus this quarter -- the first quarter that Lotus has been part of the IBM family. Installations of Lotus Notes seats increased significantly, and this also was an excellent quarter for Lotus's electronic mail software. Equally important, the IBM-Lotus integration efforts are moving forward quickly and effectively."
Revenues increased in all geographic areas in the third quarter compared with the same period of last year. Specifically, revenues from North America were $7.2 billion, up 9 percent year over year. Revenues from Europe/Middle East/ Africa were $5.6 billion, an increase of 6 percent over the same period of last year. Asia-Pacific revenues totaled $3.3 billion, up 14 percent year over year, while revenues from Latin America were $725 million, an increase of 9 percent.
Currency had an approximately 3 percentage point favorable impact on revenue results in the third quarter. This compares with a 6 percentage point positive impact in the first quarter of 1995 and a 7 percentage point positive effect in the second quarter of this year.
Hardware sales revenues were $7.8 billion in the third quarter, essentially flat from the same period of 1994. RISC System/6000 and storage product revenues increased compared with the third quarter of last year. Personal computer sales increased while AS/400 revenues declined as a result of product transitions. Mainframe revenues fell due to ongoing price reductions as well as supply shortages.
Overall software revenues were $3.1 billion, an increase of 14 percent from the third quarter of 1994, while services revenues grew 36 percent to $3.1 billion. Maintenance revenues increased 2 percent to $1.9 billion compared with the third quarter of last year, and revenues from rentals and financing grew 11 percent to $893 million.
The total gross profit margin was 41.3 percent in the third quarter compared with 39.9 percent a year earlier and 42.4 percent and 43.5 percent in the first two quarters of 1995, respectively.
The charge related to the Lotus acquisition is based on an assessment by IBM, in conjunction with an independent valuation firm, of purchased technology at Lotus. The assessment concluded that $1.8 billion of Lotus's technology did not meet accounting definitions of "completed technology," and thus should be written off under accounting rules.
Total expenses, excluding the Lotus charge, declined 2 percent in the third quarter compared with the same period of last year. IBM said that its ongoing expense reduction and resource-balancing programs will include additional, limited work force reductions in some business units in the fourth quarter, primarily in overhead areas. Consolidations of leased space and related actions also will continue. These actions are expected to result in a charge of about $800 million, which will be included in IBM's fourth quarter results.
IBM's "core" debt -- debt in support of operations, excluding financing -- declined $1.1 billion from year-end 1994 through the third quarter of 1995 to a total of $1.8 billion. Debt to support the company's worldwide credit operations increased to $19.7 billion from $19.2 billion from year-end 1994.
Net earnings for the nine months ended September 30, 1995 were $4.3 billion, or $7.39 per common share, excluding the one-time charge for the Lotus acquisition. This compares with earnings of $1.7 billion, or $2.86 per common share, in the first nine months of 1994 (excluding the sale of IBM's Federal Systems Company and the effect of accounting charges for a change in software amortization periods recorded in the first quarter of 1994). Including the Lotus charge, net earnings for the nine months ended September 30, 1995 were $2.5 billion, or $4.19 per common share, compared with earnings of $1.8 billion, or $2.96 per common share, in the same period of 1994. Revenues for the nine months ended September 30, 1995 were $50.0 billion, an increase of 13 percent from the prior year's $44.2 billion.
INTERNATIONAL BUSINESS MACHINES CORPORATION
SUPPLEMENTAL SCHEDULE - COMPARATIVE FINANCIAL RESULTS
(EXCLUDES EFFECTS OF ACCOUNTING CHARGES AND FSC SALE)
(Unaudited; Dollars in millions except per share amounts)
Three Months Nine Months
Ended September 30 Ended September 30
Percent Percent
1995 1994 Change 1995 1994(2) Change
------- ------- ------- ------- ------- -------
Revenue:
Hardware sales $7,745 $7,753 -0.1% $24,131 $21,716 11.1%
Gross margin 36.1% 33.8% 38.1% 32.6%
Software 3,134 2,755 13.7% 9,079 8,065 12.6%
Gross margin 65.6% 62.2% 65.3% 62.5%
Services 3,133 2,306 35.9% 8,619 6,434 34.0%
Gross margin 20.2% 19.1% 20.4% 18.2%
Maintenance 1,849 1,813 2.0% 5,547 5,377 3.2%
Gross margin 50.7% 49.0% 51.7% 49.8%
Rentals
and financing 893 804 11.0% 2,644 2,564 3.1%
Gross margin 56.3% 60.8% 55.5% 60.1%
Total revenue 16,754 15,431 8.6% 50,020 44,156 13.3%
Gross profit 6,921 6,154 12.4% 21,216 17,494 21.3%
Gross margin 41.3% 39.9% 42.4% 39.6%
Operating expenses:
S,G&A 3,858 3,885 -0.7% 11,374 11,351 0.2%
% of revenue 23.0% 25.2% 22.7% 25.7%
R,D&E (1) 1,035 1,053 -1.7% 2,922 3,245 -9.9%
% of revenue 6.2% 6.8% 5.8% 7.3%
Operating
income (1) 2,028 1,216 66.9% 6,920 2,898 138.8%
Other income 208 221 -6.2% 692 1,108 -37.6%
Interest expense 159 233 -31.9% 527 1,010 -47.9%
Earnings before
income taxes (1) 2,077 1,204 72.4% 7,085 2,996 136.4%
Pre-tax margin 12.4% 7.8% 14.2% 6.8%
Provision for
income taxes 775 494 56.7% 2,778 1,261 120.2%
Effective tax
rate 37.3% 41.0% 39.2% 42.1%
Net earnings (1) $1,302 $710 83.4% $4,307 $1,735 148.3%
Net margin 7.8% 4.6% 8.6% 3.9%
Preferred stock
dividends and trans-
action costs 5 21 57 63
Net earnings
applicable to common
shareholders (1) $1,297 $689 88.2% $4,250 $1,672 154.3%
====== ====== ====== ======
Net earnings per
share of common
stock (1) $2.30 $1.18 94.9% $7.39 $2.86 158.4%
====== ====== ====== ======
Average number
of common shares
outstanding (M's) 564.6 586.3 575.1 584.1
Supplemental information provided for comparative purposes:
(1) 1995 excludes $1,840 million ($3.26 per common share)
non-recurring, non-tax deductible charge for purchased
in-process research and development in connection with
the Lotus Development Corporation acquisition July 1995.
(2) 1994 excludes effects of FSC sale and writedown of
software.
INTERNATIONAL BUSINESS MACHINES CORPORATION
COMPARATIVE FINANCIAL RESULTS
(Unaudited; Dollars in millions except per share amounts)
Three Months Nine Months
Ended September 30 Ended September 30
Percent Percent
1995 1994 Change 1995 1994 Change
------- ------- ------- ------- ------- -------
Revenue:
Hardware sales $7,745 $7,753 -0.1% $24,131 $21,716 11.1%
Gross margin 36.1% 33.8% 38.1% 32.6%
Software 3,134 2,755 13.7% 9,079 8,065 12.6%
Gross margin 65.6% 62.2% 65.3% 58.8%
Services 3,133 2,306 35.9% 8,619 6,434 34.0%
Gross margin 20.2% 19.1% 20.4% 18.2%
Maintenance 1,849 1,813 2.0% 5,547 5,377 3.2%
Gross margin 50.7% 49.0% 51.7% 49.8%
Rentals
and financing 893 804 11.0% 2,644 2,564 3.1%
Gross margin 56.3% 60.8% 55.5% 60.1%
Total revenue 16,754 15,431 8.6% 50,020 44,156 13.3%
Gross profit 6,921 6,154 12.4% 21,216 17,198 23.4%
Gross margin 41.3% 39.9% 42.4% 38.9%
Operating expenses:
S,G&A 3,858 3,885 -0.7% 11,374 10,969 3.7%
% of revenue 23.0% 25.2% 22.7% 24.8%
R,D&E (1) 2,875 1,053 173.0% 4,762 3,245 46.8%
% of revenue 17.2% 6.8% 9.5% 7.3%
Operating income 188 1,216 -84.6% 5,080 2,984 70.3%
Other income 208 221 -6.2% 692 1,108 -37.6%
Interest expense 159 233 -31.9% 527 1,010 -47.9%
Earnings before
income taxes 237 1,204 -80.3% 5,245 3,082 70.2%
Pre-tax margin 1.4% 7.8% 10.5% 7.0%
Provision for
income taxes 775 494 56.7% 2,778 1,292 115.1%
Effective tax
rate 326.6% 41.0% 53.0% 41.9%
Net (loss)
earnings ($538) $710 --- $2,467 $1,790 37.8%
Net margin -3.2% 4.6% 4.9% 4.1%
Preferred stock
dividends and trans-
action costs 5 21 57 63
Net (loss) earnings
applicable to common
shareholders ($543) $689 --- $2,410 $1,727 39.6%
====== ====== ====== ======
Net (loss) earnings
per share of common
stock ($0.96) $1.18 --- $4.19 $2.96 41.6%
====== ====== ====== ======
Average number
of common shares
outstanding (M's) 564.6 586.3 575.1 584.1
(1) 1995 includes $1,840 million ($3.26 per common share)
non-recurring, non-tax deductible charge for purchased
in-process research and development in connection with
the Lotus Development Corporation acquisition July 1995.
INTERNATIONAL BUSINESS MACHINES CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Unaudited; Dollars in millions)
At At
September 30 December 31 Percent
1995 1994 Change
--------- ----------- -------
Assets:
Cash, cash equivalents,
and marketable securities $6,951 $10,554 -34.1%
Receivables - net, inventories,
and prepaid expenses 30,691 30,784 -0.3%
Plant, rental machines,
and other property - net 16,433 16,664 -1.4%
Investments and other assets 23,427 23,089 1.5%
-------- --------
Total Assets $77,502 $81,091 -4.4%
======== ========
Liabilities and Stockholders' Equity:
Short-term debt $11,076 $9,570 15.7%
Long-term debt 10,436 12,548 -16.8%
-------- --------
Total debt 21,512 22,118 -2.7%
Accounts payable, taxes,
and accruals 17,940 19,656 -8.7%
Deferred income taxes,
other liabilities and
commitments 16,386 15,904 3.0%
Stockholders' equity 21,664 23,413 -7.5%
-------- --------
Total Liabilities and
Stockholders' Equity $77,502 $81,091 -4.4%
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