Ibm Regulatory News (IBM)

18 Oct 2006 07:00

-- Diluted earnings of $1.45 per share from continuing operations, up 54 percent as reported, or 15 percent compared with $1.26 per diluted share from the third-quarter 2005, excluding a non-recurring item; -- Income from continuing operations of $2.2 billion, up 47 percent, or 9 percent, excluding the 2005 non-recurring item; -- Total revenues of $22.6 billion, up 5 percent as reported. IBM (NYSE: IBM) today announced third-quarter 2006 diluted earnings of $1.45 pershare from continuing operations, an increase of 54 percent as reported,compared with diluted earnings of $.94 per share in the third quarter of 2005;the third-quarter 2005 diluted earnings include $.32 per share for a one-timecharge of $525 million for taxes in connection with the 2005 repatriation offoreign earnings. Diluted earnings per share for the third-quarter 2006 grew 15percent compared with the year-ago quarter of $1.26 per diluted share, withoutthe one-time per share charge. Third-quarter income from continuing operations was $2.2 billion compared with$1.5 billion in the third quarter of 2005, including the one- time charge, anincrease of 47 percent. Income from continuing operations for the third quartergrew 9 percent compared with the third-quarter 2005 income from continuedoperations of $2.0 billion, excluding the one-time charge. Total revenues forthe third quarter of 2006 of $22.6 billion increased 5 percent (4 percent,adjusting for currency) from the third quarter of 2005. Samuel J. Palmisano, IBM chairman, president and chief executive officer, said:"Our strong performance is the result of excellent execution and therepositioning of IBM's business model to capture the growth and profit areas ofa rapidly changing IT industry." From a geographic perspective, the Americas third-quarter revenues were $9.8billion, an increase of 3 percent as reported (2 percent, adjusting forcurrency) from the 2005 period. Revenues from Europe/Middle East/Africa were$7.3 billion, up 6 percent (2 percent, adjusting for currency). Asia-Pacificrevenues increased 4 percent (6 percent, adjusting for currency) to $4.5billion. OEM revenues were $1.0 billion, up 24 percent compared with the 2005third quarter. Revenues from Software were $4.4 billion, an increase of 9 percent (7 percent,adjusting for currency) compared with the third quarter of 2005. Revenues fromIBM's middleware brands, which include WebSphere, Information Management,Tivoli, Lotus and Rational products, were $3.4 billion, up 12 percent versus thethird quarter of 2005. Operating systems revenues decreased 6 percent to $552million compared with the prior-year quarter. Revenues from other software andservices increased, which includes the Product Lifecycle Management portfolio ofproducts. For the WebSphere family of software products, which facilitate customers'ability to manage a wide variety of business processes using open standards tointerconnect applications, data and operating systems, revenues increased 30percent. Revenues for Information Management software, which enables clients toleverage information on demand, increased 12 percent. Revenues from Tivolisoftware, infrastructure software that enables customers to centrally managenetworks including security and storage capability, increased 44 percent, andrevenues for Lotus software, which allows collaborating and messaging bycustomers in real-time communication and knowledge management, increased 8percent year over year. Revenues from Rational software, integrated tools toimprove the processes of software development, increased 2 percent compared withthe year-ago quarter. Revenues from Global Services increased 3 percent (2 percent, adjusting forcurrency) to $12.0 billion in the third quarter of 2006. IBM signed servicescontracts totaling $10.5 billion and ended the quarter with an estimatedservices backlog, including Strategic Outsourcing, Business TransformationOutsourcing, Global Business Services, Integrated Technology Services andMaintenance, of $109 billion. Hardware revenues increased 9 percent (8 percent, adjusting for currency) to$5.6 billion in the third-quarter 2006 compared to $5.1 billion in the year-agoperiod. Systems and Technology Group (S&TG) revenues totaled $5.5 billion forthe quarter, up 10 percent. S&TG revenues from System z server productsincreased 25 percent compared with the year-ago period. Total delivery of Systemz computing power, which is measured in MIPS (millions of instructions persecond), increased 16 percent. Revenues from the System p UNIX server productsincreased 10 percent compared with the 2005 period. Revenues from the System xservers increased 4 percent, and revenues from the System i servers decreased 22percent. Revenues from Microelectronics increased 29 percent and revenues fromSystem Storage increased 12 percent. Global Financing revenues decreased 2 percent (3 percent, adjusting forcurrency) in the third quarter to $591 million. The company's total gross profit margin was 42.0 percent in the 2006 thirdquarter compared with 40.6 percent in the 2005 period. Total expense and other income increased 8 percent to $6.3 billion compared withthe prior-year period. SG&A expense increased 11 percent to $5.1 billion. RD&Eexpense increased 7 percent compared with the year-ago period. Intellectualproperty and custom development income increased to $242 million compared with$213 million a year ago. Other (income) and expense was income of $174 millionin the third quarter of 2006 versus income of $99 million in the third quarterof 2005. IBM's effective tax rate in the third-quarter 2006 was 30.0 percent, comparedwith 48.0 percent in the third quarter of 2005. The tax rate decrease wassubstantially driven by the incremental tax charge of $525 million in the thirdquarter of 2005 related to the company's repatriation of foreign earnings. Share repurchases totaled approximately $1.6 billion in the third quarter. Theweighted-average number of diluted common shares outstanding in thethird-quarter 2006 was 1.53 billion compared with 1.62 billion shares in thesame period of 2005. As of September 30, 2006, there were 1.51 billion basiccommon shares outstanding. IBM ended the third quarter of 2006 with $10.9 billion of cash on hand. Thebalance sheet remains strong, and the company is well positioned to takeadvantage of opportunities. Debt, including Global Financing, totaled $22.0 billion, compared with $22.6billion at year-end 2005. From a management segment view, the non-globalfinancing debt-to-capitalization ratio was 2.3 percent at the end of September30, 2006, and Global Financing debt increased $771 million from year-end 2005 toa total of $21.3 billion, resulting in a debt-to-equity ratio of 6.9 to 1. Year-To-Date 2006 Results Income from continuing operations for the nine months ended September 30, 2006was $6.0 billion, compared with $4.8 billion in the year-ago period, whichincludes a charge of $525 million for taxes in connection with the 2005repatriation of foreign earnings, and non-recurring pretax items for incrementalrestructuring charges of $1.7 billion, offset by the $1.1 billion gain on thesale of the Personal Computing (PC) business, and the $775 million legalsettlement received from Microsoft. Diluted earnings per share from continuingoperations were $3.81 compared with $2.92 per diluted share for the 2005 period.Revenues from continuing operations for the nine-month period totaled $65.2billion, a decrease of 2 percent as reported and adjusting for currency comparedwith $66.7 billion for the nine months of 2005, which includes PC revenues of$2.9 billion for the first four months of 2005 only. Excluding the divested PCbusiness, revenues increased 2 percent (3 percent, adjusting for currency)compared with the nine-month period of 2005. For total operations, net income for the nine months of 2006 was $6.0 billion,or $3.81 per diluted share, compared with the nine months of 2005 net income of$4.7 billion, or $2.90 per diluted share, which included a loss fromdiscontinued operations of $27 million. Forward-Looking and Cautionary Statements Except for the historical information and discussions contained herein,statements contained in this release may constitute forward-looking statementswithin the meaning of the Private Securities Litigation Reform Act of 1995.These statements involve a number of risks, uncertainties and other factors thatcould cause actual results to differ materially, including the company's failureto continue to develop and market new and innovative products and services andto keep pace with technological change; competitive pressures; failure to obtainor protect intellectual property rights; quarterly fluctuations in revenues andvolatility of stock prices; the company's ability to attract and retain keypersonnel; adverse affects from tax matters; currency fluctuations and customerfinancing risks; customer credit risk on trade receivables; the company'sfailure to maintain the adequacy of its internal controls; the company's use ofcertain estimates and assumptions; dependence on certain suppliers; changes inthe financial or business condition of the company's distributors or resellers;the company's ability to successfully manage acquisitions and alliances; failureto have sufficient insurance; legal, political, health and economic conditions;risk factors related to IBM securities; and other risks, uncertainties andfactors discussed in the company's Form 10-Q, Form 10-K and in the company'sother filings with the U.S. Securities and Exchange Commission (SEC) or inmaterials incorporated therein by reference. The company assumes no obligationto update or revise any forward-looking statements. Presentation of Information in this Press Release In an effort to provide investors with additional information regarding thecompany's results as determined by generally accepted accounting principles(GAAP), the company has also disclosed in this press release the followingnon-GAAP information which management believes provides useful information toinvestors: IBM results: -- without non-recurring items, -- without divested PC business, -- adjusting for currency (i.e., at constant currency). The rationale for management's use of non-GAAP measures is included as part ofthe supplementary materials presented within the third-quarter earningsmaterials. These materials are available on the IBM investor relations Web siteat www.ibm.com/investor and are being included in Attachment II ("Non-GAAPSupplementary Materials") to the Form 8-K that includes this press release andis being submitted today to the SEC. Conference Call and Webcast IBM's regular quarterly earnings conference call is scheduled to begin at 4:30p.m. EDT, today. Investors may participate by viewing the Webcast atwww.ibm.com/investor/3q06. Presentation charts will be available on the Web siteprior to the Webcast. Financial Results Attached (amounts may not total due to rounding) \* T 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 2006 2005* Change 2006 2005* Change ------- ------- ------- ------- ------- -------REVENUE Global Services $12,017 $11,697 2.7% $35,478 $35,407 0.2% Gross margin 27.8% 26.1% 27.4% 25.5% Hardware 5,583 5,130 8.9% 15,306 17,445 -12.3% Gross margin 37.7% 37.1% 35.1% 32.3% Software 4,406 4,059 8.5% 12,554 11,930 5.2% Gross margin 85.3% 84.9% 84.6% 84.4% Global Financing 591 600 -1.5% 1,755 1,802 -2.6% Gross margin 48.6% 54.5% 50.9% 53.7% Other 20 43 -54.5% 74 123 -39.9% Gross margin 8.1% 29.2% -9.1% 51.5% TOTAL REVENUE 22,617 21,529 5.1% 65,166 66,707 -2.3% GROSS PROFIT 9,492 8,738 8.6% 26,594 25,767 3.2% Gross margin 42.0% 40.6% 40.8% 38.6% EXPENSE AND OTHER INCOME S,G&A 5,121 4,632 10.5% 14,639 16,062 -8.9% % of revenue 22.6% 21.5% 22.5% 24.1% R,D&E 1,543 1,447 6.6% 4,520 4,383 3.1% % of revenue 6.8% 6.7% 6.9% 6.6% Intellectual property and custom development income (242) (213) 13.2% (659) (720) -8.4% Other (income) and expense (174) (99) 75.9% (616) (1,788) -65.6% Interest expense 70 56 24.0% 207 172 20.6% TOTAL EXPENSE ANDOTHER INCOME 6,317 5,823 8.5% 18,091 18,109 -0.1% % of revenue 27.9% 27.0% 27.8% 27.1% INCOME FROM CONTINUINGOPERATIONS BEFOREINCOME TAXES 3,174 2,915 8.9% 8,503 7,658 11.0% Pre-tax margin 14.0% 13.5% 13.0% 11.5% Provision forincome taxes 952 1,399 -32.0% 2,551 2,884 -11.6% Effective tax rate 30.0% 48.0% 30.0% 37.7% INCOME FROM CONTINUINGOPERATIONS $2,222 $1,516 46.6% $5,952 $4,774 24.7% Net margin 9.8% 7.0% 9.1% 7.2% DISCONTINUED OPERATIONSLoss from discontinuedoperations (0) 0 (0) 27 NET INCOME $2,222 $1,516 46.5% $5,952 $4,747 25.4% ====== ====== ====== ====== EARNINGS/(LOSS)PER SHAREOF COMMON STOCK: ASSUMING DILUTION CONTINUING OPERATIONS $1.45 $0.94 54.3% $3.81 $2.92 30.5% DISCONTINUED OPERATIONS (0.00) 0.00 (0.00) (0.02) ----- ------ ------ ------ TOTAL $1.45 $0.94 54.3% $3.81 $2.90 31.4% ====== ====== ====== ====== BASIC CONTINUING OPERATIONS $1.47 $0.95 54.7% $3.87 $2.97 30.3% DISCONTINUED OPERATIONS (0.00) 0.00 (0.00) (0.02) ------ ------ ------ ------ TOTAL $1.47 $0.95 54.7% $3.87 $2.95 31.2% ====== ====== ====== ====== WEIGHTED-AVERAGE NUMBEROF COMMON SHARESOUTSTANDING (M's) ASSUMING DILUTION 1,534.3 1,617.2 1,560.5 1,635.2 BASIC 1,513.2 1,591.3 1,538.6 1,607.9\* T \* T * The company filed a Form 8-K with the U.S. SEC on June 13, 2006 toreclassify its historical financial statements and related footnotesto reflect changes to its management system in the first quarter of2006.\* T \* T INTERNATIONAL BUSINESS MACHINES CORPORATION CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Unaudited) At At(Dollars in millions) September 30, December 31, Percent 2006 2005 Change ------------ ----------- -------ASSETS Cash, cash equivalents, and marketable securities $10,900 $13,686 -20.4% Receivables - net, inventories, prepaid expenses 29,768 31,975 -6.9% Plant, rental machines, and other property - net 14,059 13,756 2.2% Investments and other assets 49,428 46,331 6.7% -------- -------- TOTAL ASSETS $104,155 $105,748 -1.5% ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Short-term debt $8,555 $7,216 18.6% Long-term debt 13,436 15,425 -12.9% -------- -------- Total debt 21,991 22,641 -2.9% Accounts payable, taxes, and accruals 26,374 27,936 -5.6% Other liabilities 21,542 22,073 -2.4% -------- --------TOTAL LIABILITIES 69,907 72,650 -3.8% STOCKHOLDERS' EQUITY 34,248 33,098 3.5% -------- --------TOTAL LIABILITIES ANDSTOCKHOLDERS' EQUITY $104,155 $105,748 -1.5% ======== ======== INTERNATIONAL BUSINESS MACHINES CORPORATION SEGMENT DATA (Unaudited) THIRD QUARTER 2006 ---------------------------------------------- Pre-tax Income (Loss) From(Dollars in millions) -------- Revenue --------- Continuing Pre-tax External Internal Total Operations Margin -------- -------- ------- ---------- -------SEGMENTS Global Technology Services $8,058 $428 $8,486 $814 9.6% % change 3.5% -18.8% 2.1% -6.4% Global Business Services 3,959 337 4,295 405 9.4% % change 1.2% 0.6% 1.2% 40.8% Systems and TechnologyGroup 5,466 255 5,721 413 7.2% % change 9.6% -5.0% 8.8% 13.1% Software 4,406 559 4,965 1,302 26.2% % change 8.5% 15.1% 9.2% 15.2% Global Financing 587 337 924 335 36.2% % change -2.1% 16.7% 4.0% -7.9% Personal ComputingDivision 0 0 0 0 0.0% TOTAL REPORTABLE SEGMENTS 22,476 1,916 24,391 3,268 13.4% % change 5.3% 0.6% 4.9% 8.4% Eliminations / Other 141 (1,916) (1,774) (94) TOTAL IBM CONSOLIDATED $22,617 $0 $22,617 $3,174 14.0% % change 5.1% 5.1% 8.9% THIRD QUARTER 2005* ---------------------------------------------- Pre-tax Income (Loss) From(Dollars in millions) -------- Revenue --------- Continuing Pre-tax External Internal Total Operations Margin -------- -------- ------- ---------- -------SEGMENTS Global Technology Services $7,787 $526 $8,313 $871 10.5% Global Business Services 3,910 335 4,245 288 6.8% Systems and TechnologyGroup 4,988 268 5,256 365 6.9% Software 4,059 486 4,545 1,130 24.9% Global Financing 599 289 888 363 40.9% Personal ComputingDivision 0 0 0 0 0.0% TOTAL REPORTABLE SEGMENTS 21,343 1,904 23,247 3,017 13.0% Eliminations / Other 186 (1,904) (1,719) (101) TOTAL IBM CONSOLIDATED $21,529 $0 $21,529 $2,915 13.5%\* T \* T * The company filed a Form 8-K with the U.S. SEC on June 13, 2006 toreclassify its financial statements and related footnotes to reflectchanges to its management system effective as of the first quarterof 2006, including the separation of the Global Services segment intotwo new reportable segments: Global Technology Services and GlobalBusiness Services, as well as the reclassification of EnterpriseInvestments to other reportable segments.\* T \* T INTERNATIONAL BUSINESS MACHINES CORPORATION SEGMENT DATA (Unaudited) NINE MONTHS 2006 ---------------------------------------------- Pre-tax Income (Loss) From(Dollars in millions) -------- Revenue --------- Continuing Pre-tax External Internal Total Operations Margin -------- -------- ------- ---------- -------SEGMENTS Global Technology Services $23,732 $1,328 $25,061 $2,445 9.8% % change 1.1% -18.8% -0.2% 61.5% Global Business Services 11,746 1,023 12,769 1,168 9.1% % change -1.5% -0.8% -1.5% 207.5% Systems and TechnologyGroup 14,900 807 15,706 582 3.7% % change 5.4% 5.7% 5.4% -13.7% Software 12,554 1,616 14,170 3,478 24.5% % change 5.2% 13.6% 6.1% 22.3% Global Financing 1,744 1,039 2,784 1,068 38.4% % change -3.0% 2.6% -1.0% -2.3% Personal ComputingDivision 0 0 0 0 nm % change nm nm nm nm TOTAL REPORTABLE SEGMENTS 64,676 5,814 70,490 8,741 12.4% % change -2.2% -1.5% -2.2% 37.9% Eliminations / Other 491 (5,814) (5,323) (239) TOTAL IBM CONSOLIDATED $65,166 $0 $65,166 $8,503 13.0% % change -2.3% -2.3% 11.0% NINE MONTHS 2005* ---------------------------------------------- Pre-tax Income (Loss) From(Dollars in millions) -------- Revenue --------- Continuing Pre-tax External Internal Total Operations Margin -------- -------- ------- ---------- -------SEGMENTS Global Technology Services $23,481 $1,636 $25,117 $1,514 6.0% Global Business Services 11,926 1,032 12,958 380 2.9% Systems and TechnologyGroup 14,132 763 14,895 674 4.5% Software 11,930 1,423 13,353 2,844 21.3% Global Financing 1,798 1,013 2,811 1,092 38.8% Personal ComputingDivision 2,876 33 2,909 (165) nm TOTAL REPORTABLE SEGMENTS 66,143 5,899 72,042 6,340 8.8% Eliminations / Other 565 (5,899) (5,335) 1,319 TOTAL IBM CONSOLIDATED $66,707 $0 $66,707 $7,658 11.5%\* T \* T nm - not meaningful\* T \* T * The company filed a Form 8-K with the U.S. SEC on June 13, 2006 toreclassify its financial statements and related footnotes to reflectchanges to its management system effective as of the first quarterof 2006, including the separation of the Global Services segment intotwo new reportable segments: Global Technology Services and GlobalBusiness Services, as well as the reclassification of EnterpriseInvestments to other reportable segments.\* T Copyright Business Wire 2006