IBM REPORTS 1996 THIRD-QUARTER RESULTS
ARMONK, N.Y., October 21, 1996 . . . IBM today reported third-quarter 1996 net earnings of $1.3 billion, or $2.45 per common share. This compares to earnings of $1.3 billion, or $2.30 per common share, in the same period of last year, excluding a one-time charge of approximately $1.8 billion associated with IBM's acquisition of the Lotus Development Corporation. Third-quarter 1996 revenues grew 8 percent year over year to $18.1 billion.
Louis V. Gerstner, Jr., IBM chairman and chief executive officer, said: "This was a very good quarter. A highlight was the continued rollout of integrated solutions that help fulfill the promise of a networked world to our customers. For example, we joined with 16 major banks to form Integrion Financial Network, an on-line service for interactive banking and electronic commerce. Our Internet mall -- known as World Avenue -- opened its doors, allowing customers to shop electronically using secure, industry-leading technology. In addition, the Singapore government launched a network-based system, developed with IBM, to speed and simplify all aspects of procurement.
"Our network computing efforts also resulted in the delivery of major new products such as 'Domino,' which helps customers rapidly develop applications for the Internet and intranets using Lotus Notes. In addition, we introduced our first network computer and a family of products and services called CommercePOINT designed to provide secure electronic commerce on the World Wide Web.
"From a business unit standpoint," Mr. Gerstner said, "our PC division had another outstanding quarter and our server product performance was strong with the exception of the RS/6000, which has been undergoing a major product transition. Software revenues were basically flat, but our high-priority software products grew well, including Lotus Notes and Tivoli system management software as well as other pivotal distributed products. Our services business continued to show excellent growth.
"As a result of these factors, total revenues increased 11 percent at constant currency. Importantly, our revenue growth over the past seven quarters has averaged 8 percent at constant currency."
Revenues increased in North America, Asia, and Latin America, while European revenues were flat. Specifically, revenues from North America were $8.2 billion, up 14 percent year over year. Asia-Pacific revenues grew 8 percent to $3.5 billion and Latin America revenues rose 12 percent to $811 million. European revenues were essentially unchanged year over year at $5.6 billion.
Currency had an approximately 3 percentage point negative impact on revenue results in the third quarter. This compares with an approximately 3-point favorable impact in the third quarter of last year and an approximately 5-point negative impact in the second quarter of this year. Excluding the effects of currency, Asia-Pacific revenues climbed 19 percent and European revenues grew 1 percent.
Hardware sales revenues totaled $8.4 billion, up 8 percent year over year. Personal computer, AS/400, and storage product revenues increased from the same period of last year, while RS/6000 revenues fell. System/390 revenues declined from the year-earlier period, although shipments of mainframe computing capacity as measured in MIPS (millions of instructions per second) increased 77 percent. Semiconductor revenues also decreased from the previous year as a result of continuing industry-wide pricing pressures.
Services revenues increased 26 percent to $3.9 billion. During the quarter, IBM won a 5-year, $340 million outsourcing contract from Prudential, and the IBM Global Network signed major contracts with Puerto Rico Telephone and Pacific Bell. Software revenues declined 1 percent to $3.1 billion. The software revenue drop was largely due to a decline in host-based software revenues. Distributed software revenues grew significantly in the quarter compared with the year-earlier period.
Maintenance revenues dropped 7 percent year over year to $1.8 billion, while rentals and financing revenues increased 4 percent to $933 million.
The company's overall gross profit margin for the quarter was 40.2 percent compared with 41.3 percent during the same period of last year and 39.5 percent in the second quarter of 1996.
Total expenses increased 9 percent in the quarter. This increase was due primarily to ongoing restructuring, advertising and promotional expenses associated with the 1996 Olympics, increased investments in customer solutions from IBM's industry-specific business units, and expanded investments in channels and business partners.
The company's tax rate was 35.1 percent in the third quarter compared with 37.3 percent during the same period of last year. IBM spent approximately $1.3 billion for common share repurchases in the third quarter. The average number of common shares outstanding in the quarter was 521.8 million compared with 564.6 million during the same period of 1995.
Net earnings for the nine months ended September 30, 1996 were $3.8 billion, or $7.16 per common share, excluding charges associated with research and development related to acquisitions in the first quarter of 1996. This compares with net earnings of $4.3 billion, or $7.39 per common share, during the first nine months of 1995, excluding a one-time charge of approximately $1.8 billion associated with the acquisition of Lotus Development Corporation. Including these charges, IBM's nine-month 1996 net earnings were $3.4 billion, or $6.36 per common share compared with net earnings of $2.5 billion, or $4.19 per common share, during the first nine months of 1995.
Revenues for the nine months ended September 30, 1996 were $52.8 billion, an increase of 6 percent from the $50.0 billion recorded during the same period of last year.
Since December 31, 1995, "core" debt (debt in support of operations, excluding customer financing) increased $542 million to $2.4 billion. Customer financing debt increased $960 million during the same period to $20.7 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 ACQUISITIONS IN
FIRST QUARTER 1996 AND THIRD QUARTER 1995)*
(Unaudited; Dollars in millions except per share amounts)
Three Months Nine Months
Ended September 30 Ended September 30
Percent Percent
1996 1995 Change 1996 1995 Change
------- ------- ------- ------- ------- -------
Revenue:
Hardware sales $8,372 $7,745 8.1% $24,656 $24,131 2.2%
Gross margin 36.9% 36.1% 35.1% 38.1%
Services 3,932 3,133 25.5% 10,864 8,619 26.0%
Gross margin 18.1% 20.2% 19.4% 20.4%
Software 3,102 3,134 -1.0% 9,334 9,079 2.8%
Gross margin 68.2% 65.6% 68.9% 65.3%
Maintenance 1,723 1,849 -6.8% 5,226 5,547 -5.8%
Gross margin 47.5% 50.7% 47.7% 51.7%
Rentals
and financing 933 893 4.4% 2,724 2,644 3.0%
Gross margin 55.8% 56.3% 56.3% 55.5%
Total revenue 18,062 16,754 7.8% 52,804 50,020 5.6%
Gross profit 7,258 6,921 4.9% 21,218 21,216 ---
Gross margin 40.2% 41.3% 40.2% 42.4%
Operating expenses:
S,G&A 4,175 3,858 8.2% 11,761 11,374 3.4%
% of revenue 23.1% 23.0% 22.3% 22.7%
R,D&E (1,2) 1,115 1,035 7.7% 3,322 2,922 13.7%
% of revenue 6.2% 6.2% 6.3% 5.8%
Operating
income 1,968 2,028 -3.0% 6,135 6,920 -11.3%
Other income 183 208 -11.5% 526 692 -23.9%
Interest expense 172 159 8.6% 526 527 -0.2%
Earnings before
income taxes 1,979 2,077 -4.7% 6,135 7,085 -13.4%
Pre-tax margin 11.0% 12.4% 11.6% 14.2%
Provision for
income taxes 694 775 -10.4% 2,294 2,778 -17.4%
Effective tax
rate 35.1% 37.3% 37.4% 39.2%
Net earnings $1,285 $1,302 -1.4% $3,841 $4,307 -10.8%
Net margin 7.1% 7.8% 7.3% 8.6%
Preferred stock
dividends and trans-
action costs 5 5 15 57
Net earnings
applicable to common
shareholders $1,280 $1,297 -1.4% $3,826 $4,250 -10.0%
====== ====== ====== ======
Net earnings per
share of common
stock $2.45 $2.30 6.5% $7.16 $7.39 -3.1%
====== ====== ====== ======
Average number of
common shares out-
standing (M's) 521.8 564.6 533.3 575.1
* Supplemental information provided for comparative purposes:
(1) Nine months 1996 excludes $435 million ($.80 per common
share) of non-recurring, non-tax deductible charges for
purchased in-process research and development in
connection with the Tivoli Systems Inc. and Object
Technology International Inc. acquisitions in March, 1996.
(2) Three and nine months 1995 excludes a $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 in July, 1995.
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
1996 1995 Change 1996 1995 Change
------- ------- ------- ------- ------- -------
Revenue:
Hardware sales $8,372 $7,745 8.1% $24,656 $24,131 2.2%
Gross margin 36.9% 36.1% 35.1% 38.1%
Services 3,932 3,133 25.5% 10,864 8,619 26.0%
Gross margin 18.1% 20.2% 19.4% 20.4%
Software 3,102 3,134 -1.0% 9,334 9,079 2.8%
Gross margin 68.2% 65.6% 68.9% 65.3%
Maintenance 1,723 1,849 -6.8% 5,226 5,547 -5.8%
Gross margin 47.5% 50.7% 47.7% 51.7%
Rentals
and financing 933 893 4.4% 2,724 2,644 3.0%
Gross margin 55.8% 56.3% 56.3% 55.5%
Total revenue 18,062 16,754 7.8% 52,804 50,020 5.6%
Gross profit 7,258 6,921 4.9% 21,218 21,216 ---
Gross margin 40.2% 41.3% 40.2% 42.4%
Operating expenses:
S,G&A 4,175 3,858 8.2% 11,761 11,374 3.4%
% of revenue 23.1% 23.0% 22.3% 22.7%
R,D&E (1,2) 1,115 2,875 -61.2% 3,757 4,762 -21.1%
% of revenue 6.2% 17.2% 7.1% 9.5%
Operating income 1,968 188 948.2% 5,700 5,080 12.2%
Other income 183 208 -11.5% 526 692 -23.9%
Interest expense 172 159 8.6% 526 527 -0.2%
Earnings before
income taxes 1,979 237 734.9% 5,700 5,245 8.7%
Pre-tax margin 11.0% 1.4% 10.8% 10.5%
Provision for
income taxes 694 775 -10.4% 2,294 2,778 -17.4%
Effective tax
rate 35.1% 326.6% 40.3% 53.0%
Net earnings
(loss) $1,285 ($538) --- $3,406 $2,467 38.0%
Net margin 7.1% -3.2% 6.4% 4.9%
Preferred stock
dividends and trans-
action costs 5 5 15 57
Net earnings (loss)
applicable to common
shareholders $1,280 ($543) --- $3,391 $2,410 40.7%
====== ====== ====== ======
Net earnings (loss)
per share of common
stock $2.45 ($0.96) --- $6.36 $4.19 51.8%
====== ====== ====== ======
Average number of
common shares out-
standing (M's) 521.8 564.6 533.3 575.1
(1) Nine months 1996 includes $435 million ($.80 per common
share) of non-recurring, non-tax deductible charges for
purchased in-process research and development in
connection with the Tivoli Systems Inc. and Object
Technology International Inc. acquisitions in March, 1996.
(2) Three and nine months 1995 includes a $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 in July, 1995.
INTERNATIONAL BUSINESS MACHINES CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Unaudited; Dollars in millions)
At At
September 30 December 31 Percent
1996 1995 Change
------------ ----------- -------
Assets:
Cash, cash equivalents,
and marketable securities $7,002 $7,701 -9.1%
Receivables - net, inventories,
and prepaid expenses 32,377 32,990 -1.9%
Plant, rental machines,
and other property - net 16,676 16,579 0.6%
Investments and other assets 21,941 23,022 -4.7%
-------- --------
Total Assets $77,996 $80,292 -2.9%
======== ========
Liabilities and Stockholders' Equity:
Short-term debt $13,462 $11,569 16.4%
Long-term debt 9,669 10,060 -3.9%
-------- --------
Total debt 23,131 21,629 6.9%
Accounts payable, taxes,
and accruals 17,609 20,079 -12.3%
Other liabilities and
deferred income taxes 15,888 16,161 -1.7%
-------- --------
Total liabilities 56,628 57,869 -2.1%
Stockholders' equity 21,368 22,423 -4.7%
-------- --------
Total Liabilities and
Stockholders' Equity $77,996 $80,292 -2.9%
======== ========
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