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: October 20, 1999
(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)
<PAGE>
Item 5. Other Events
The registrant's press release dated October 20, 1999, regarding its
financial results for the period ended September 30, 1999, including unaudited
consolidated financial statements for the period ended September 30, 1999, 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: October 21, 1999
By: Mark Loughridge
-------------------------------------
(Mark Loughridge)
Vice President and Controller
<PAGE>
IBM ANNOUNCES THIRD-QUARTER 1999 RESULTS
ARMONK, N.Y., October 20, 1999 . . .IBM today announced third-quarter 1999
diluted earnings per common share of $.93 compared with diluted earnings per
common share of $.78 in the third quarter of 1998. Third-quarter 1999 revenues
increased 5 percent as reported and in constant currency to $21.1 billion.
Third-quarter 1999 net income totaled $1.8 billion compared with $1.5 billion in
the third quarter of last year.
IBM's third-quarter 1999 results include an after-tax benefit of $63
million, or $.03 per diluted common share, resulting from several actions that
occurred in the quarter. Specifically, IBM closed the sale of its Global Network
in a number of additional geographic areas. The company completed three
acquisitions, resulting in charges for in-process research and development. IBM
also took additional actions in the quarter to improve the competitiveness of
the company's Technology Group.
Louis V. Gerstner, Jr., IBM chairman and chief executive officer, said:
"It was a decidedly mixed quarter. On the negative side, we saw a Y2K slowdown
toward the end of the quarter, particularly in our large servers, and to a
lesser extent in services and operating systems software. Additionally, we were
hurt by shortages of flat-panel displays, margin pressure in our hard disk drive
business, and sales disruptions related to our sale of certain networking
hardware assets. On the positive side, our growth businesses -- services,
software other than operating systems, and OEM -- all performed very well.
Combined with strong expense management, they enabled us to grow our pre-tax
earnings and earnings per share significantly, once again underscoring the
strength of our broad business portfolio.
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"Looking forward, we believe we will continue to feel the effects of the
Y2K slowdown in the fourth quarter and into early next year," Mr. Gerstner said.
"However, even though it is difficult to make predictions, next year has the
potential to be a very good year for IBM, once we get past any lingering Y2K
effects. As our third-quarter results demonstrate, our business portfolio has
great breadth and resiliency. We remain confident about our fundamental business
strategies, the value of our products and services, and our overall momentum."
Third-quarter revenues from the Americas totaled $9.6 billion, a decrease
of 1 percent (up 1 percent at constant currency) compared with the third quarter
of 1998. Revenues from Europe/Middle East/Africa were $5.8 billion, down 2
percent (up 4 percent at constant currency). Asia-Pacific revenues grew 28
percent (10 percent at constant currency) to $3.7 billion. OEM revenues totaled
$2.0 billion, an increase of 24 percent (22 percent at constant currency).
Hardware revenues were $8.8 billion in the third quarter, a decrease of 1
percent (2 percent at constant currency) compared with the same period of last
year. Personal computer revenues increased, with particularly strong growth in
the Netfinity server line. Microelectronics revenues also increased, while
RS/6000 revenues declined slightly. The Y2K issue adversely affected AS/400
revenues to a significant degree and System/390 revenues -- which faced a
difficult year-over-year comparison -- also fell due to the Y2K slowdown and
ongoing price reductions. Storage revenues were flat and networking hardware
revenues declined significantly from the same period of last year.
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Revenues from IBM Global Services, after normalizing for the Global
Network sale, increased 19 percent in the quarter (excluding maintenance).
Including maintenance, and without normalizing for the Global Network sale,
Global Services revenues grew 12 percent (11 percent at constant currency) to
$7.9 billion. IBM signed $9.2 billion in services contracts in the quarter and
concluded the period with a total services contract backlog of approximately
$57.5 billion. The Global Services gross margin improved 1.7 points year over
year.
Software revenues increased 7 percent (8 percent at constant currency) in
the third quarter to $3.0 billion. Revenues from the "middleware" category --
software that is critical for e-business -- increased 13 percent (14 percent at
constant currency), with particularly strong results in Tivoli systems
management, transaction processing and database products. IBM also posted record
shipments of the company's Lotus Notes/Domino groupware products in the third
quarter. In addition, IBM acquired DASCOM, Inc., a leader in the Web-security
market.
Revenues from Global Financing increased 14 percent (14 percent at
constant currency) in the third quarter to $774 million.
Revenues from the Enterprise Investments/Other area, which comprises
custom applications and other products designed to meet specialized customer
requirements, declined 3 percent (3 percent at constant currency) year over year
to $622 million.
IBM's overall gross profit margin was 35.8 percent in the third quarter
compared with 37.2 percent in the third quarter of 1998. The transition in the
networking hardware business negatively affected the company's overall gross
margin by .7 of a point and the hardware margin by 1.6 points.
IBM's third-quarter expenses of $4.9 billion also include the effect of
the various actions mentioned earlier, totaling $345 million, that occurred
during the quarter. The company improved its expense-to-revenue ratio by 3.2
points, of which 1.6 points are attributable to the third-quarter actions.
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IBM's tax rate in the quarter, including the third-quarter actions, was
33.0 percent compared with 30.0 percent in the third quarter of 1998. IBM's tax
rate increased by approximately 3 points in the quarter, primarily as a result
of the third-quarter actions.
IBM spent approximately $1.5 billion on share repurchases in the third
quarter. The average number of basic common shares outstanding in the quarter
was 1,805 million compared with 1,857 million in the year-earlier period. There
were 1,803 million basic common shares outstanding at September 30, 1999.
Debt in support of operations, excluding global financing, decreased $1.1
billion from year-end 1998 to $568 million, resulting in a
debt-to-capitalization ratio of 4 percent. Global financing debt declined $418
million from the end of 1998 to a total of $27.3 billion, resulting in a
debt-to-equity ratio of 5.7 to 1.
Despite spending $1.5 billion on share repurchases and reducing debt by
$1.1 billion, IBM completed the quarter with $6 billion in cash.
Net income for the nine months ended September 30, 1999, including the
effect of actions taken in the second and third quarters, was $5.6 billion, or
$2.99 per diluted common share, compared with net income of $4.0 billion, or
$2.05 per diluted common share, in the year-earlier period. Through the first
nine months of 1999, IBM's diluted earnings per share grew 46 percent, with 20
points of that growth attributable to actions taken in the second and third
quarters. Revenues for the nine months ended September 30, 1999 were $63.4
billion, an increase of 12 percent (12 percent at constant currency) compared
with $56.5 billion in the same period of 1998.
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Third-Quarter Actions
-- In December 1998, IBM announced that it would sell its Global
Network business to AT&T for $5 billion. In the third quarter of
1999, IBM completed the sales of the Global Network in 34 countries
for approximately $730 million, bringing the year-to-date total to
38 countries and $4.9 billion. In the third quarter, IBM recognized
a pre-tax gain of $586 million ($366 million after tax, or $.19 per
diluted common share) related to this transaction.
-- In the third quarter of 1999, IBM completed the acquisitions of
Sequent Computer Systems, Inc. and the Mylex Corporation in addition
to DASCOM, Inc. These actions are intended to improve IBM's
long-term competitiveness in the server, storage, and Web-security
markets, respectively. As a result of these acquisitions, IBM
recorded a pre-tax charge of $111 million ($111 million after tax,
or $.06 per diluted common share) for in-process research and
development.
-- During the third quarter of 1999, IBM took a number of additional
actions to improve the competitiveness of its Technology Group.
These actions principally involved two divisions within the
Technology Group, the Networking Hardware Division and the Storage
Systems Division. In the networking area, IBM entered into a
strategic agreement with Cisco Systems under which the two companies
will offer a full spectrum of services and solutions for customers'
e-business and networking needs. In the storage area, IBM continued
to take steps in the third quarter to consolidate certain
development operations. As a result of these third-quarter actions,
IBM recognized pre-tax writedowns totaling $274 million ($192
million after tax, or $.10 per diluted common share).
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
<PAGE>
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INTERNATIONAL BUSINESS MACHINES CORPORATION
COMPARATIVE FINANCIAL RESULTS
(Unaudited; Dollars in millions except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
Percent Percent
1999 1998 Change 1999 1998 Change
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
REVENUE
Hardware $ 8,840 $ 8,920 -0.9% $26,803 $23,952 11.9%
Gross profit margin 25.2% 31.6% 27.0% 30.4%
Global Services 7,898 7,046 12.1% 23,436 20,356 15.1%
Gross profit margin 27.6% 25.9% 27.5% 26.7%
Software 3,010 2,808 7.2% 9,056 8,318 8.9%
Gross profit margin 81.2% 80.6% 81.9% 80.4%
Global Financing 774 679 13.9% 2,222 2,110 5.3%
Gross profit margin 56.7% 48.1% 56.0% 47.5%
Enterprise Investments/Other 622 642 -3.1% 1,849 1,800 2.8%
Gross profit margin 43.1% 36.1% 38.4% 36.2%
TOTAL REVENUE 21,144 20,095 5.2% 63,366 56,536 12.1%
GROSS PROFIT 7,564 7,467 1.3% 23,046 21,063 9.4%
Gross profit margin 35.8% 37.2% 36.4% 37.3%
OPERATING EXPENSES
S,G&A 3,501 4,057 -13.7% 10,284 11,588 -11.2%
Expense of revenue 16.6% 20.2% 16.2% 20.5%
R,D&E 1,383 1,240 11.5% 3,857 3,639 6.0%
Expense of revenue 6.5% 6.2% 6.1% 6.4%
OPERATING INCOME 2,680 2,170 23.4% 8,905 5,836 52.6%
Other income 134 122 10.2% 423 402 5.3%
Interest expense 185 160 15.0% 556 500 11.1%
INCOME BEFORE INCOME TAXES (1,2) 2,629 2,132 23.3% 8,772 5,738 52.9%
Pre-tax margin 12.4% 10.6% 13.8% 10.1%
Provision for
income taxes 867 638 35.9% 3,149 1,756 79.3%
Effective tax rate 33.0% 30.0% 35.9% 30.6%
NET INCOME (1,2) $ 1,762 $ 1,494 17.9% $ 5,623 $ 3,982 41.2%
Net margin 8.3% 7.4% 8.9% 7.0%
Preferred stock dividends 5 5 15 15
NET INCOME APPLICABLE
TO COMMON SHAREHOLDERS $ 1,757 $ 1,489 18.0% $ 5,608 $ 3,967 41.4%
======= ======= ======= =======
EARNINGS PER SHARE
OF COMMON STOCK - ASSUMING
DILUTION $ 0.93 $ 0.78 19.2% $ 2.99 $ 2.05 45.9%
======= ======= ======= =======
EARNINGS PER SHARE
OF COMMON STOCK - BASIC $ 0.97 $ 0.80 21.3% $ 3.09 $ 2.11 46.4%
======= ======= ======= =======
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING (M's)
DILUTED 1,869.6 1,909.0 1,874.7 1,931.0
BASIC 1,805.2 1,856.9 1,813.7 1,878.8
</TABLE>
1) Third-quarter 1999 results include a pre-tax benefit of $201 million
(after-tax benefit of $63 million, or $.03 per diluted common share) due to a
gain from the sales of the IBM Global Network in a number of geographic areas,
charges for acquired in-process research and development related to three
acquisitions, as well as a charge for actions in the company's Technology Group.
2) Nine-month 1999 results include a pre-tax benefit of $1.8 billion (after-tax
benefit of $750 million, or $.40 per diluted common share) due to a gain from
the sale of the IBM Global Network, charges for acquired in-process research and
development related to three acquisitions, a charge for actions in the company's
Technology Group, as well as a change in PC depreciable lives.
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 10, 1999.
<PAGE>
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INTERNATIONAL BUSINESS MACHINES CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Unaudited; Dollars in millions)
<TABLE>
<CAPTION>
At At
September 30, December 31, Percent
1999 1998 Change
------------ ----------- -------
<S> <C> <C> <C>
ASSETS
Cash, cash equivalents, and marketable securities $ 6,026 $ 5,768 4.5%
Receivables - net, inventories, and prepaid expenses 36,851 36,592 0.7%
Plant, rental machines, and other property - net 17,463 19,631 -11.0%
Investments and other assets 25,035 24,109 3.8%
------- -------
TOTAL ASSETS $85,375 $86,100 -0.8%
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt $14,096 $13,905 1.4%
Long-term debt 13,807 15,508 -11.0%
------- -------
Total debt 27,903 29,413 -5.1%
Accounts payable, taxes, and accruals 23,682 22,922 3.3%
Other liabilities 13,722 14,332 -4.3%
------- -------
TOTAL LIABILITIES 65,307 66,667 -2.0%
STOCKHOLDERS' EQUITY 20,068 19,433 3.3%
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $85,375 $86,100 -0.8%
======= =======
</TABLE>
<PAGE>
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INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
<TABLE>
<CAPTION>
THIRD QUARTER 1999
=====================================================================
(Dollars in millions) Pre-tax
------------- Revenue --------------- Pre-tax Income
External Internal Total Income Margin
=====================================================================
<S> <C> <C> <C> <C> <C>
SEGMENTS
Technology $ 3,100 $ 883 $ 3,983 $ 285 7.2%
% change 9.8% -26.4% -1.0% 108.0%
Personal Systems 3,716 12 3,728 (69) -1.9%
% change 11.2% 50.0% 11.3% 43.4%
Server 1,946 72 2,018 295 14.6%
% change -29.3% -40.0% -29.7% -59.6%
Global Services 7,898 688 8,586 1,174 13.7%
% change 12.1% -7.3% 10.2% 38.1%
Software 3,010 168 3,178 597 18.8%
% change 7.2% -12.0% 6.0% 8.0%
Global Financing 786 194 980 322 32.9%
% change 11.3% 9.6% 11.0% 14.2%
Enterprise Investments 619 4 623 (89) -14.3%
% change 5.8% -75.0% 3.7% 45.7%
TOTAL SEGMENTS 21,075 2,021 23,096 2,515 10.9%
% change 5.0% -17.6% 2.6% 10.9%
Eliminations / Other 69 (2,021) (1,952) 114*
TOTAL IBM $ 21,144 $ 0 $ 21,144 $ 2,629 12.4%
% change 5.2% 5.2% 23.3%
<CAPTION>
THIRD QUARTER 1998
=====================================================================
(Dollars in millions) Pre-tax
------------- Revenue --------------- Pre-tax Income
External Internal Total Income Margin
=====================================================================
<S> <C> <C> <C> <C> <C>
SEGMENTS
Technology $ 2,824 $ 1,200 $ 4,024 $ 137 3.4%
Personal Systems 3,343 8 3,351 (122) -3.6%
Server 2,751 120 2,871 731 25.5%
Global Services 7,046 742 7,788 850 10.9%
Software 2,808 191 2,999 553 18.4%
Global Financing 706 177 883 282 31.9%
Enterprise Investments 585 16 601 (164) -27.3%
TOTAL SEGMENTS 20,063 2,454 22,517 2,267 10.1%
Eliminations / Other 32 (2,454) (2,422) (135)
TOTAL IBM $ 20,095 $ 0 $ 20,095 $ 2,132 10.6%
</TABLE>
* Pre-tax income includes a benefit of $201 million due to a gain from the sales
of the IBM Global Network in a number of geographic areas, charges for acquired
in-process research and development related to three acquisitions, as well as a
charge for actions in the company's Technology Group.
<PAGE>
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INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
<TABLE>
<CAPTION>
NINE MONTHS 1999
====================================================================
(Dollars in millions) Pre-tax
-------------- Revenue -------------- Pre-tax Income
External Internal Total Income Margin
====================================================================
<S> <C> <C> <C> <C> <C>
SEGMENTS
Technology $ 9,032 $ 2,794 $ 11,826 $ 485 4.1%
% change 7.9% -15.5% 1.3% -26.1%
Personal Systems 11,178 26 11,204 (311) -2.8%
% change 34.1% 23.8% 34.1% 69.4%
Server 6,368 237 6,605 1,309 19.8%
% change -11.0% -20.5% -11.4% -26.9%
Global Services 23,436 1,985 25,421 3,284 12.9%
% change 15.1% -2.4% 13.5% 30.0%
Software 9,056 561 9,617 1,954 20.3%
% change 8.9% 1.6% 8.4% 10.1%
Global Financing 2,274 599 2,873 947 33.0%
% change 4.7% 18.8% 7.4% 11.4%
Enterprise Investments 1,829 18 1,847 (262) -14.2%
% change 11.3% -55.0% 9.7% 44.8%
TOTAL SEGMENTS 63,173 6,220 69,393 7,406 10.7%
% change 12.1% -7.9% 10.0% 21.3%
Eliminations / Other 193 (6,220) (6,027) 1,366*
TOTAL IBM $ 63,366 $ 0 $ 63,366 $ 8,772 13.8%
% change 12.1% 12.1% 52.9%
<CAPTION>
NINE MONTHS 1998
====================================================================
(Dollars in millions) Pre-tax
-------------- Revenue -------------- Pre-tax Income
External Internal Total Income Margin
====================================================================
<S> <C> <C> <C> <C> <C>
SEGMENTS
Technology $ 8,369 $ 3,306 $ 11,675 $ 656 5.6%
Personal Systems 8,335 21 8,356 (1,016) -12.2%
Server 7,159 298 7,457 1,790 24.0%
Global Services 20,356 2,033 22,389 2,526 11.3%
Software 8,318 552 8,870 1,774 20.0%
Global Financing 2,172 504 2,676 850 31.8%
Enterprise Investments 1,643 40 1,683 (475) -28.2%
TOTAL SEGMENTS 56,352 6,754 63,106 6,105 9.7%
Eliminations / Other 184 (6,754) (6,570) (367)
TOTAL IBM $ 56,536 $ 0 $ 56,536 $ 5,738 10.1%
</TABLE>
* Pre-tax income includes a benefit of $1.8 billion due to a gain from the sale
of the IBM Global Network, charges for acquired in-process research and
development related to three acquisitions, charges for actions in the company's
Technology Group, as well as a change in PC depreciable lives.
