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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 20, 1998
(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)
914-499-1900
(Registrant's telephone number)
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Item 5. Other Events
The registrant's press release dated July 20, 1998, regarding its
financial results for the period ended June 30, 1998, including unaudited
consolidated financial statements for the period ended June 30, 1998, are
attached.
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.
Date: July 20, 1998
By: Mark Loughridge
-----------------------------
(Mark Loughridge)
Vice President and Controller
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[IBM LETTERHEAD]
IBM Announces Second-Quarter 1998 Results
ARMONK, N.Y., July 20, 1998 . . . IBM today announced second-quarter 1998
diluted earnings per common share of $1.50 compared with diluted earnings per
common share of $1.43 in the second quarter of 1997. Second-quarter 1998 net
earnings totaled $1.5 billion compared with $1.4 billion in the second
quarter of last year. Second-quarter 1998 revenues were flat (up 4 percent
in constant currency) at $18.8 billion.
Louis V. Gerstner, Jr., IBM chairman and chief executive officer, said:
"Our second quarter and first half results clearly indicate, perhaps more so
than at any other time in recent years, the value and strength of IBM's
portfolio of businesses. We absorbed three major hits that affected the
industry: intense price competition and excess inventory in the PC channel,
continued severe price erosion in DRAM chips, and the impact of the Asian
crisis. Despite all of these factors, we were able to achieve our earnings
targets because of the very strong performance of our services, OEM and
software businesses.
"Nevertheless, our second-quarter results were mixed. Our hardware
revenues were down primarily because of the weakness in PCs. Additionally,
our System/390 server business slowed in the quarter because of a major
product transition that is underway. On the positive side, our services
revenues grew by nearly $1 billion, and this business made a major
contribution to the company's earnings. Our software revenues showed good
growth, and the software gross margin improved for the fifth consecutive
quarter. Our AS/400 and storage businesses had another strong quarter.
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"As we look ahead," Mr. Gerstner said, "we feel very good about the
momentum of our growth businesses and we believe that some of the problem
areas will begin to show improvement over the course of the year. For
example, we have reduced PC dealer inventory and we're seeing strong demand
for our powerful new System/390 servers, which we'll begin shipping in
August. At the same time, we remain cautious about Asia and the DRAM
outlook."
On an as-reported basis, revenues from North America totaled $9.0
billion, an increase of 5 percent compared with the year-earlier period.
Revenues from Europe/Middle East/Africa grew 2 percent (5 percent at constant
currency) to $5.8 billion. Asia-Pacific revenues were $3.3 billion, a decline
of 13 percent (up 1 percent at constant currency). Revenues from Latin
America totaled $782 million, a decrease of 8 percent (6 percent at constant
currency) compared with the second quarter of 1997.
Total hardware sales were $7.5 billion in the second quarter, a decline
of 13 percent (down 9 percent at constant currency) compared with the second
quarter of last year. Personal computer and RS/6000 revenues declined.
System/390 revenues also decreased as a result of the product transition and
year-over-year price reductions. Storage revenues increased year over year,
primarily as a result of continued strong OEM shipments of hard disk drives.
Services revenues grew 22 percent (up 27 percent in constant currency) in
the second quarter to $5.6 billion, the third consecutive quarter in which
services revenues exceeded $5 billion. IBM signed services agreements
totaling $7 billion during the second quarter, and the gross profit margin in
services improved 1.3 points over the second quarter of 1997.
Software revenues increased 5 percent (up 9 percent at constant currency)
in the second quarter to $3.2 billion, with particularly strong performance
in DB2 database software, AS/400 software, and Tivoli systems management
software. Shipments of Lotus Notes seats maintained their strong momentum.
The software gross profit margin improved 6 points.
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Maintenance revenues fell 9 percent (down 5 percent in constant currency)
in the second quarter to $1.5 billion, while revenues from rentals and
financing increased 7 percent (up 9 percent at constant currency) to nearly
$1 billion.
IBM's overall gross profit margin was 38.0 percent in the second quarter
compared with 39.2 percent in the year-ago period.
Total second quarter expenses declined 3 percent year over year. The
company's expense-to-revenue ratio improved approximately 1 point year over
year.
IBM's tax rate was 30.3 percent in the second quarter compared with 33.7
percent in the second quarter of 1997.
Share repurchases totaled $1.7 billion in the second quarter. The average
number of shares outstanding in the quarter was 939.6 million compared with
986.9 million in the year-ago period. There were 933.1 million common shares
outstanding at June 30, 1998.
Core debt (debt excluding global financing) increased $500 million from
year-end 1997 to $3.6 billion. Global financing debt totaled $24.3 billion,
up $400 million from the end of 1997.
Net earnings for the six months ended June 30, 1998 were $2.5 billion, or
$2.56 per diluted common share, compared with net earnings of $2.6 billion,
or $2.58 per diluted common share, in the year-earlier period. Revenues for
the six months ended June 30, 1998 were $36.4 billion, an increase of 1
percent (5 percent at constant currency) compared with $36.2 billion at the
end of the first six months of 1997.
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.
Financial Results Attached
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INTERNATIONAL BUSINESS MACHINES CORPORATION
COMPARATIVE FINANCIAL RESULTS
(Unaudited; Dollars in millions except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
Percent Percent
1998 1997 Change 1998 1997 Change
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
REVENUE
Hardware sales $ 7,523 $ 8,616 -12.7% $14,643 $16,377 -10.6%
Gross profit margin 30.3% 35.5% 29.4% 34.0%
Services 5,603 4,612 21.5% 10,611 8,707 21.9%
Gross profit margin 21.9% 20.6% 21.5% 20.0%
Software 3,228 3,084 4.6% 6,246 6,034 3.5%
Gross profit margin 76.6% 70.6% 75.6% 69.9%
Maintenance 1,480 1,632 -9.3% 2,956 3,235 -8.6%
Gross profit margin 49.9% 46.5% 48.5% 46.6%
Rentals and financing 989 928 6.6% 1,985 1,827 8.6%
Gross profit margin 43.1% 49.6% 43.4% 52.0%
TOTAL REVENUE 18,823 18,872 -0.3% 36,441 36,180 0.7%
GROSS PROFIT 7,146 7,401 -3.4% 13,596 13,993 -2.8%
Gross profit margin 38.0% 39.2% 37.3% 38.7%
OPERATING EXPENSES
S,G&A 3,812 3,958 -3.7% 7,531 7,642 -1.4%
Expense to revenue 20.3% 21.0% 20.7% 21.1%
R,D&E 1,220 1,221 -0.0% 2,399 2,290 4.8%
Expense to revenue 6.5% 6.5% 6.6% 6.3%
OPERATING INCOME 2,114 2,222 -4.9% 3,666 4,061 -9.7%
Other income 130 137 -5.1% 280 322 -12.8%
Interest expense 161 179 -10.3% 340 351 -3.0%
EARNINGS BEFORE INCOME TAXES 2,083 2,180 -4.4% 3,606 4,032 -10.6%
Pre-tax margin 11.1% 11.6% 9.9% 11.1%
Provision for income taxes 631 734 -14.1% 1,118 1,391 -19.6%
Effective tax rate 30.3% 33.7% 31.0% 34.5%
NET EARNINGS $ 1,452 $ 1,446 0.4% $ 2,488 $ 2,641 -5.8%
Net margin 7.7% 7.7% 6.8% 7.3%
Preferred stock dividends 5 5 10 10
NET EARNINGS APPLICABLE
TO COMMON SHAREHOLDERS $ 1,447 $ 1,441 0.4% $ 2,478 $ 2,631 -5.8%
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NET EARNINGS PER SHARE
OF COMMON STOCK - BASIC $ 1.54 $ 1.46 5.4% $ 2.62 $ 2.64 -0.8%
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NET EARNINGS PER SHARE
OF COMMON STOCK - ASSUMING
DILUTION $ 1.50 $ 1.43 4.9% $ 2.56 $ 2.58 -0.8%
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AVERAGE NUMBER OF COMMON
SHARES OUT STANDING (M's)
BASIC 939.6 986.9 944.9 995.1
DILUTED 964.3 1,010.4 969.5 1,019.2
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INTERNATIONAL BUSINESS MACHINES CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Unaudited; Dollars in millions)
<TABLE>
<CAPTION>
At At
June 30 December 31 Percent
1998 1997 Change
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<S> <C> <C> <C>
ASSETS
Cash, cash equivalents, and marketable securities $ 5,471 $ 7,553 -27.6%
Receivables - net, inventories, and prepaid expenses 31,541 32,865 -4.0%
Plant, rental machines, and other property - net 18,453 18,347 0.6%
Investments and other assets 21,647 22,734 -4.8%
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TOTAL ASSETS $77,112 $81,499 -5.4%
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LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt $13,271 $13,230 0.3%
Long-term debt 14,590 13,696 6.5%
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Total debt 27,861 26,926 3.5%
Accounts payable, taxes, and accruals 16,779 20,277 -17.3%
Other liabilities 13,895 14,480 -4.0%
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TOTAL LIABILITIES 58,535 61,683 -5.1%
STOCKHOLDERS' EQUITY 18,577 19,816 -6.3%
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $77,112 $81,499 -5.4%
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</TABLE>
