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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: July 21, 1997
(Date of earliest event reported)
INTERNATIONAL BUSINESS MACHINES CORPORATION
(Exact name of registrant as specified in its charter)
New York 1-2360 13-0871985
(State of Incorporation) (Commission (IRS employer
File Number) Identification No.)
ARMONK, NEW YORK 10504
(Address of principal executive offices) (Zip Code)
914-765-1900
(Registrant's telephone number)
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Item 5. Other Events
The registrant's press release dated July 21, 1997, regarding its
financial results for the period ended June 30, 1997, including unaudited
consolidated financial statements for the period ended June 30, 1997, are
attached.
Forward Looking and Cautionary Statements
Except for the historical information and discussions contained herein,
statements contained in this Form 8-K may constitute 'forward looking
statements' within the meaning of the Private Securities Litigation Reform
Act of 1995 ("Reform Act"). The Company may also make forward looking
statements in other reports filed with the Securities and Exchange
Commission, in materials delivered to stockholders and in press releases. In
addition, the Company's representatives may from time to time make oral
forward looking statements. In accordance with the Reform Act, set forth
below are cautionary statements that accompany those forward looking
statements. These cautionary statements identify certain important factors
that could cause actual results to differ materially from those in the
forward looking statements and from historical trends.
New Products and the Pace of Technological Change
The Company's future results of operations depend upon the continued
successful development and marketing of new and innovative products and
services. The development of new products and services requires significant
capital investments by the Company's various businesses and the success of
these products and services depends on their acceptance by customers and
business partners. Further, the Company's businesses are characterized by rapid
technological changes and corresponding shifts in customer demand, resulting in
unpredictable product transitions and shortened life cycles. There can be no
assurances that the Company will successfully introduce new products and
services, that these products and services will be accepted by customers, or
that the Company's businesses will recoup or realize a return on their capital
investments. In addition, from time to time the Company may experience
difficulties or delays in the development, production or marketing of new
products and services.
Competition
The Company operates in businesses that are subject to intense competitive
pressures that could affect prices or demand for the Company's products and
services, resulting in reduced profit margins and/or loss of market
opportunity. Unlike many of its competitors,
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the Company must allocate resources across its various businesses while
competing with companies that specialize in one or more of these product
lines. As a result, the Company may not fund or invest in certain of its
businesses to the same degree that its competitors do.
Intellectual Property Rights
The Company's intellectual property protections may not prevent competitors
from independently developing products and services similar to or duplicative
of the Company's nor can there be any assurance that these protections will
adequately deter misappropriation or improper use of the Company's technology.
The Company also relies on intellectual property that it licenses from others
and there can be no assurances that it will be able to obtain the licenses it
needs in the future.
Dependence on Key Personnel
Experienced personnel in the information technology industry are in high
demand and competition for their talents is intense. There can be no
assurance that the Company will be able to successfully attract and retain
the key personnel it needs.
Currency and Customer Financing Risks
The Company derives a significant percentage of its non-U.S. revenues from
its affiliates operating in local currency environments and its results are
affected by changes in the relative values of non-U.S. currencies and the U.S.
dollar.
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Further, inherent in the Company's customer financing business are risks
related to the concentration of credit risk and the creditworthiness of the
customer, interest rate and currencyfluctuations on the associated debt and
liabilities and the determination of residual values. The Company employs a
number of strategies to manage these risks, including the use of derivative
financial instruments. Derivatives involve the risk of non-performance by the
counterparty. In addition, there can be no assurance that the Company's
efforts to manage these risks will be successful.
Dependence on Suppliers
Certain of the Company's businesses rely on components or supplies from
either a single supplier or a limited number of suppliers and the Company's
demand for certain components and supplies will change from time to time.
There can be no assurance that sources for these components or supplies will
be available in a timely or cost effective manner.
Distribution Channels
The Company offers its products directly and through a variety of third party
distributors and resellers. Changes in the financial or business condition of
these distributors and resellers could subject the Company to losses and affect
its ability to bring its products to market.
Acquisitions and Alliances
The Company has made and expects to continue to make acquisitions or enter
into alliances from time to time. Acquisitions and alliances present
significant challenges and risks relating to the integration of the business
into the Company, and there can be no assurances that the Company will
manage acquisitions and alliances successfully.
Legal, Political and Economic Changes
The Company is subject to the laws and policies of the countries in which it
operates and changes in those laws or policies could affect the Company's
business in that country and the Company's results of operations. The
Company's results of operations could also be affected by economic changes
generally, including recessions and inflation.
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The foregoing cautionary statements are not exclusive and are in addition to
other factors discussed elsewhere in the Company's filings with the Securities
and Exchange Commission. The Company is under no obligation to update or revise
any forward looking statement.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
INTERNATIONAL BUSINESS MACHINES CORPORATION
(Registrant)
Date: July 21, 1997
By: /s/ John R. Joyce
------------------------------
(John R. Joyce)
Vice President and Controller
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IBM ANNOUNCES SECOND-QUARTER 1997 RESULTS
ARMONK, N.Y., July 21, 1997 . . . IBM today announced second-quarter 1997
net earnings of $1.4 billion, or $1.46 per common share, compared with net
earnings of $1.3 billion, or $1.26 per common share, in the second quarter of
1996. Second-quarter 1997 revenues were $18.9 billion, an increase of 4 percent
(8 percent at constant currency) from the second quarter of last year.
Louis V. Gerstner, Jr., IBM chairman and chief executive officer, said:
"These results show the ongoing strength of our broad business portfolio. We saw
very good customer response to our new System/390 servers and continuing
strength in services and hard disk drives. There was substantial year-over-year
improvement in our semiconductor business. Our PC commercial and PC server
results were good. Results from these areas more than offset revenue declines in
some other segments, most notably our consumer PC business and our AS/400 and
RS/6000 server lines. As a result of our balanced portfolio, we achieved good
constant currency revenue growth in the quarter.
"During the quarter we also acquired full ownership of Advantis, the U.S.
network services arm of our global services business, and we completed the
acquisition of a majority interest in NetObjects, a leading developer of
sophisticated web sites. These are important acquisitions, and they will further
strengthen our position in the rapidly growing areas of services and network
computing.
"I'm also pleased with our performance in the first half of the year," Mr.
Gerstner said. "We posted constant currency revenue growth of 8 percent in an
extremely competitive environment worldwide. Our newer businesses continued to
grow rapidly while our more mature businesses showed increasing stabilization
and, in many instances, the opportunity for future growth. Most important, we
saw our position as a worldwide integrator of products and services grow
stronger every day. It's clear from recent announcements that many of our
competitors are trying to achieve what we already have: the ability to deliver
total solutions to our customers.
"As we look forward, we must continue to focus on executing our product and
strategic plans. We also must maintain firm control over expenses. Overall,
though, I believe we are very much on track," Mr. Gerstner said.
On an as-reported basis, second-quarter revenues in North America were $8.6
billion, an increase of 10 percent from the
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same period of 1996. Asia-Pacific revenues grew 4 percent to $3.8 billion
while revenues from Latin America were up 8 percent to $847 million. Revenues
from Europe/Middle East/ Africa declined 5 percent to $5.7 billion.
Total hardware sales were $8.6 billion in the second quarter, flat
compared with the same period of last year. Personal computer revenues
increased, while RS/6000 and AS/400 revenues declined. System/390 server
revenues were essentially flat year over year. System/390 shipments, as
measured in MIPS (millions of instructions per second), increased
approximately 60 percent. Revenues from IBM Microelectronics and the
company's storage division increased.
Services revenues totaled $4.6 billion, a 24-percent increase from the
second quarter of 1996. Approximately $3.3 billion in new services contracts
were signed in the quarter, and services continued to show strong revenue growth
in such areas as systems integration, outsourcing and disaster recovery. The
services business also maintained a sharp focus on profitability, with gross
margins holding stable year over year.
Software revenues fell 3 percent from the year-earlier period to $3.1
billion. Distributed software revenues increased, led by continued strong
shipments of Lotus Notes seats and Tivoli systems management software.
Host-based software revenues declined.
Maintenance revenues declined 7 percent year over year to $1.6 billion,
while revenues from rentals and financing were flat at $928 million.
On a constant currency basis, Asia-Pacific revenues increased 10 percent and
Europe/Middle East/ Africa revenues grew 3 percent. In addition, also in
constant currency terms, hardware revenues climbed 4 percent, services revenues
grew 28 percent, software revenues increased 1 percent, maintenance revenues
declined 2 percent and rentals and financing grew 3 percent.
The company's total gross profit margin was 39.2 percent in the second
quarter compared with 39.5 percent in the second quarter of 1996.
Total expenses grew 4 percent. Within the expense category, investments
in research, development and engineering increased 9 percent, largely as a
result of purchased R&D related to the NetObjects acquisition and continued
investments to support IBM's network computing solutions within the company's
industry-specific business units. Selling, general and administrative
expenses increased slightly, 2 percent, year over year.
IBM's tax rate was 33.7 percent in the second quarter compared with 38.1
percent in the year-earlier period.
IBM spent approximately $1.6 billion on share repurchases in the second
quarter. The average number of common shares outstanding in the quarter was
986.9 million compared with 1,067.8 million during the same period of last year
(a 2-for-1 common stock split became effective May 9, 1997). As of the end of
the quarter, there were 982.3 million shares outstanding.
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The company's "core" debt (excluding customer financing) increased $843
million from year-end 1996 to $3.0 billion. Debt supporting IBM's worldwide
credit operations increased $2.1 billion to $22.7 billion from $20.6 billion at
year-end 1996.
Net earnings for the six months ended June 30, 1997 were $2.6 billion, or
$2.64 per common share compared with net earnings of $2.6 billion, or $2.36 per
common share, in the first six months of 1996, excluding a charge associated
with research and development related to acquisitions in the first quarter of
1996. Including this charge, net earnings for the six months ended June 30, 1996
were $2.1 billion, or $1.96 per common share. Revenues for the six months ended
June 30, 1997 were $36.2 billion, an increase of 4 percent (8 percent at
constant currency) from the prior year's $34.7 billion.
Financial Results Attached
INTERNATIONAL BUSINESS MACHINES CORPORATION
SUPPLEMENTAL SCHEDULE--COMPARATIVE FINANCIAL RESULTS
(EXCLUDES EFFECT OF PURCHASED R&D FOR SIX MONTHS 1996)*
(Unaudited; Dollars in millions except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
--------------------------------- -----------------------------
PERCENT PERCENT
1997 1996 CHANGE 1997 1996 CHANGE
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<S> <C> <C> <C> <C> <C> <C>
REVENUE
Hardware sales................................................ $ 8,616 $ 8,576 0.4% $ 16,377 $ 16,284 0.6%
Gross profit margin......................................... 35.5% 33.4% 34.0% 34.2%
Services...................................................... 4,612 3,734 23.5% 8,707 6,932 25.6%
Gross profit margin......................................... 20.6% 20.8% 20.0% 20.1%
Software...................................................... 3,084 3,195 -3.4% 6,034 6,232 -3.2%
Gross profit margin......................................... 70.6% 68.4% 69.9% 69.2%
Maintenance................................................... 1,632 1,754 -7.0% 3,235 3,503 -7.7%
Gross profit margin......................................... 46.5% 47.8% 46.6% 47.8%
Rentals and financing......................................... 928 924 0.3% 1,827 1,791 2.0%
Gross profit margin......................................... 49.6% 57.4% 52.0% 56.6%
TOTAL REVENUE.................................................. 18,872 18,183 3.8% 36,180 34,742 4.1%
GROSS PROFIT................................................... 7,401 7,191 2.9% 13,993 13,960 0.2%
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Gross profit margin......................................... 39.2% 39.5% 38.7% 40.2%
OPERATING EXPENSES
S,G&A......................................................... 3,958 3,889 1.7% 7,642 7,586 0.7%
Expense to revenue.......................................... 21.0% 21.4% 21.1% 21.8%
R,D&E......................................................... 1,221 1,116 9.4% 2,290 2,207 3.8%
Expense to revenue.......................................... 6.5% 6.1% 6.3% 6.4%
OPERATING INCOME.............................................. 2,222 2,186 1.7% 4,061 4,167 -2.5%
Other income.................................................. 137 193 -29.1% 322 343 -6.1%
Interest expense.............................................. 179 205 -12.5% 351 354 -1.0%
EARNINGS BEFORE INCOME TAXES.................................. 2,180 2,174 0.3% 4,032 4,156 -3.0%
Pre-tax margin.............................................. 11.6% 12.0% 11.1% 12.0%
Provision for income taxes.................................... 734 827 -11.3% 1,391 1,600 -13.1%
Effective tax rate.......................................... 33.7% 38.1% 34.5% 38.5%
NET EARNINGS *................................................ $ 1,446 $ 1,347 7.4% $ 2,641 $ 2,556 3.3%
Net margin.................................................. 7.7% 7.4% 7.3% 7.4%
Preferred stock dividends..................................... 5 5 10 10
NET EARNINGS APPLICABLE TO COMMON SHAREHOLDERS................ $ 1,441 $ 1,342 7.4% $ 2,631 $ 2,546 3.4%
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NET EARNINGS PER SHARE OF COMMON STOCK........................ $ 1.46 $ 1.26 15.9% $ 2.64 $ 2.36 11.9%
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AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (M's)............. 986.9 1,067.8 995.1 1,078.2
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* Supplemental information provided for comparative purposes: Net earnings for
the six months 1996 excludes a $435 million non-recurring, non-tax
deductible charge for purchased in-process research and development in
connection with the Tivoli Systems Inc. and Object Technology International
Inc. acquisitions in March 1996.
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Note: All references to the average number of common shares and per
common share data for all periods presented have been adjusted to reflect
a 2-for-1 stock split of the common stock effective May 9, 1997.
INTERNATIONAL BUSINESS MACHINES CORPORATION
COMPARATIVE FINANCIAL RESULTS
(Unaudited; Dollars in millions except per share amounts)
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<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
PERCENT PERCENT
1997 1996 CHANGE 1997 1996 CHANGE
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<S> <C> <C> <C> <C> <C> <C>
REVENUE
Hardware sales.............................................. $ 8,616 $ 8,576 0.4% $ 16,377 $ 16,284 0.6%
Gross profit margin....................................... 35.5% 33.4% 34.0% 34.2%
Services.................................................... 4,612 3,734 23.5% 8,707 6,932 25.6%
Gross profit margin....................................... 20.6% 20.8% 20.0% 20.1%
Software.................................................... 3,084 3,195 -3.4% 6,034 6,232 -3.2%
Gross profit margin....................................... 70.6% 68.4% 69.9% 69.2%
Maintenance................................................. 1,632 1,754 -7.0% 3,235 3,503 -7.7%
Gross profit margin....................................... 46.5% 47.8% 46.6% 47.8%
Rentals and financing....................................... 928 924 0.3% 1,827 1,791 2.0%
Gross profit margin....................................... 49.6% 57.4% 52.0% 56.6%
TOTAL REVENUE................................................. 18,872 18,183 3.8% 36,180 34,742 4.1%
GROSS PROFIT.................................................. 7,401 7,191 2.9% 13,993 13,960 0.2%
Gross profit margin......................................... 39.2% 39.5% 38.7% 40.2%
OPERATING EXPENSES
S,G&A....................................................... 3,958 3,889 1.7% 7,642 7,586 0.7%
Expense to revenue........................................ 21.0% 21.4% 21.1% 21.8%
R,D&E....................................................... 1,221 1,116 9.4% 2,290 2,642 -13.3%
Expense to revenue........................................ 6.5% 6.1% 6.3% 7.6%
OPERATING INCOME.............................................. 2,222 2,186 1.7% 4,061 3,732 8.8%
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Other income.................................................. 137 193 -29.1% 322 343 -6.1%
Interest expense.............................................. 179 205 -12.5% 351 354 -1.0%
EARNINGS BEFORE INCOME TAXES.................................. 2,180 2,174 0.3% 4,032 3,721 8.4%
Pre-tax margin.............................................. 11.6% 12.0% 11.1% 10.7%
Provision for income taxes.................................... 734 827 -11.3% 1,391 1,600 -13.1%
Effective tax rate.......................................... 33.7% 38.1% 34.5% 43.0%
NET EARNINGS *................................................ $ 1,446 $ 1,347 7.4% $ 2,641 $ 2,121 24.5%
Net margin.................................................. 7.7% 7.4% 7.3% 6.1%
Preferred stock dividends..................................... 5 5 10 10
NET EARNINGS APPLICABLE TO COMMON SHAREHOLDERS................ $ 1,441 $ 1,342 7.4% $ 2,631 $ 2,111 24.6%
--------- --------- --------- ---------
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NET EARNINGS PER SHARE OF COMMON STOCK........................ $ 1.46 $ 1.26 15.9% $ 2.64 $ 1.96 34.7%
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AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (M's)............ 986.9 1,067.8 995.1 1,078.2
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* Net earnings for the six months 1996 includes a $435 million non-recurring,
non-tax deductible charge for purchased in-process research and development
in connection with the Tivoli Systems Inc. and Object Technology
International Inc. acquisitions in March 1996. Net earnings excluding the
charge were $2,556 million, or $2.36 per common share.
Note: All references to the average number of common shares and per common
share data for all periods presented have been adjusted to reflect a 2-for-1
stock split of the common stock effective May 9, 1997.
INTERNATIONAL BUSINESS MACHINES CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Unaudited; Dollars in millions)
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<TABLE>
<CAPTION>
AT AT
JUNE 30 DECEMBER 31 PERCENT
1997 1996 CHANGE
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<S> <C> <C> <C>
ASSETS
Cash, cash equivalents, and marketable securities............................. $ 6,861 $ 8,137 -15.7%
Receivables--net, inventories, and prepaid expenses........................... 31,778 32,558 -2.4%
Plant, rental machines, and other property--net............................... 17,647 17,407 1.4%
Investments and other assets.................................................. 22,533 23,030 -2.2%
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TOTAL ASSETS.................................................................... $ 78,819 $ 81,132 -2.8%
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LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt............................................................... $ 14,028 $ 12,957 8.3%
Long-term debt................................................................ 11,675 9,872 18.3%
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Total debt.................................................................... 25,703 22,829 12.6%
Accounts payable, taxes, and accruals......................................... 18,531 21,043 -11.9%
Other liabilities and deferred income taxes................................... 14,476 15,632 -7.4%
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Total liabilities............................................................. 58,710 59,504 -1.3%
Stockholders' equity.......................................................... 20,109 21,628 -7.0%
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...................................... $ 78,819 $ 81,132 -2.8%
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