Ibm Regulatory News (IBM)

21 Jan 2009 07:00

IBM (NYSE: IBM):

Full-Year 2008:

Record revenue of $103.6 billion; Record pre-tax profit of $16.7 billion; Record earnings per share of $8.93; Record free cash flow of $14.3 billion, up $1.9 billion, excluding Global Financing receivables.

Full-Year 2009:

Earnings-per-share expectation of at least $9.20.

Fourth-Quarter 2008:

Diluted earnings of $3.28 per share, up 17 percent; Net income of $4.4 billion, up 12 percent; Gross profit margin of 47.9 percent, up 3 points; Revenue of $27.0 billion, impacted by strong U.S. dollar, down 6 percent, down 1 percent adjusting for currency; Software revenues up 3 percent, up 9 percent adjusting for currency; pre-tax income up 15 percent; Global Technology Services revenue down 4 percent, up 3 percent adjusting for currency; pre-tax income up 35 percent; Global Business Services revenues down 5 percent, flat adjusting for currency; pre-tax income up 26 percent; Services signings of $17.2 billion, 24 deals greater than $100 million; Strategic outsourcing signings up 20 percent worldwide, up 44 percent in North America.

IBM (NYSE: IBM) today announced fourth-quarter 2008 diluted earnings of $3.28 per share from continuing operations compared with diluted earnings of $2.80 per share in the fourth quarter of 2007, an increase of 17 percent as reported. Fourth- quarter income from continuing operations was $4.4 billion compared with $4.0 billion in the fourth quarter of 2007, an increase of 12 percent. Total revenues for the fourth quarter of 2008 of $27.0 billion decreased 6 percent (1 percent, adjusting for currency) from the fourth quarter of 2007.

"A strong fourth quarter capped an outstanding year. In 2008 IBM performed well in an extremely difficult economic environment. Clearly our strategic transformation --- migrating to the more profitable segments of the industry, investing in growth regions of the world, and driving productivity through global integration --- is continuing to pay dividends," said Samuel J. Palmisano, IBM chairman, president and chief executive officer.

"With our strong financial position, solid recurring revenue and profit streams and global reach, we are confident about 2009 and, based on our 2008 performance, we are ahead of pace on our roadmap for $10 to $11 per share."

IBM said that it expects full-year 2009 earnings of at least $9.20 per share.

From a geographic perspective, the Americas' fourth-quarter revenues were $11.5 billion, a decrease of 2 percent (up 2 percent, adjusting for currency) from the 2007 period. Revenues from Europe/Middle East/Africa were $9.5 billion, down 12 percent (1 percent, adjusting for currency). Asia-Pacific revenues decreased 1 percent (1 percent, adjusting for currency) to $5.5 billion. OEM revenues were $615 million, down 31 percent compared with the 2007 fourth quarter. Revenues from the company's growth markets organization decreased 7 percent (up 6 percent, adjusting for currency) and represented 18 percent of geographic revenues.

Total Global Services revenues decreased 4 percent (up 2 percent, adjusting for currency). Global Technology Services segment revenues decreased 4 percent (up 3 percent, adjusting for currency) to $9.6 billion. Global Business Services segment revenues decreased 5 percent (flat, adjusting for currency) to $4.7 billion. IBM signed services contracts totaling $17.2 billion, at actual rates, a decrease of 5 percent ($15.6 billion, adjusting for currency, up 2 percent), including 24 contracts greater than $100 million. Short-term signings were $7.3 billion, a decrease of 7 percent at actual rates (1 percent to $6.6 billion, adjusting for currency). Long-term signings decreased 3 percent, at actual rates, to $9.9 billion (up 3 percent to $9.0 billion, adjusting for currency). The estimated services backlog at December 31 was $117 billion, adjusting for currency.

Revenues from the Software segment were $6.4 billion, an increase of 3 percent (9 percent, adjusting for currency) compared with the fourth quarter of 2007; pre-tax income increased 15 percent. Revenues from IBM's middleware products, which primarily include WebSphere, Information Management, Tivoli, Lotus and Rational products, were $5.2 billion, up 4 percent versus the fourth quarter of 2007. Operating systems revenues of $622 million decreased 6 percent compared with the prior-year quarter.

For the WebSphere family of software products, which facilitate customers' ability to manage a wide variety of business processes using open standards to interconnect applications, data and operating systems, revenues decreased 1 percent. Revenues from Information Management software, which enables clients to leverage information on demand, increased 18 percent. Revenues from Tivoli software, infrastructure software that enables clients to centrally manage networks including security and storage capability, decreased 4 percent, and revenues from Lotus software, which allows collaborating and messaging by clients in real-time communication and knowledge management, was flat year over year. Revenues from Rational software, integrated tools to improve the processes of software development, decreased 1 percent compared with the year-ago quarter.

Revenues from the Systems and Technology segment totaled $5.4 billion for the quarter, down 20 percent (16 percent, adjusting for currency). Systems revenues decreased 18 percent (14 percent, adjusting for currency). Revenues from the converged System p server products increased 8 percent compared with the 2007 period. Revenues from System z mainframe server products decreased 6 percent compared with the year- ago period. Total delivery of System z computing power, which is measured in MIPS (millions of instructions per second), increased 12 percent. Revenues from the System x servers decreased 32 percent, and revenues from the legacy System i servers decreased 92 percent. Revenues from System Storage decreased 20 percent, and revenues from Retail Store Solutions decreased 28 percent. Revenues from Microelectronics OEM decreased 34 percent.

Global Financing segment revenues decreased 1 percent (up 5 percent, adjusting for currency) in the fourth quarter to $660 million.

The company's total gross profit margin was 47.9 percent in the 2008 fourth quarter compared with 44.9 percent in the 2007 period, led by strong performance in both services segments.

Total expense and other income decreased 5 percent to $7.1 billion compared with the prior-year period. Adjusting for currency and estimated acquisitions impacts, total expense and other income decreased 2 percent year over year. SG&A expense decreased 3 percent to $5.8 billion. RD&E expense of $1.5 billion decreased 4 percent compared with the year-ago period. Intellectual property and custom development income increased to $328 million compared with $236 million a year ago. Other (income) and expense was income of $97 million, down $1 million from a year ago. Interest expense decreased to $192 million compared with $214 million in the prior year.

IBM's tax rate in the fourth-quarter 2008 was 23.8 percent compared with 28.0 percent in the fourth quarter of 2007, a decline of 4.2 points due primarily to the utilization of tax credits, including the retroactive benefit of the recently-enacted U.S. research tax credit. The full-year 2008 tax rate was 26.2 percent, and IBM expects its full- year 2009 tax rate to be sustained at approximately 26.5 percent.

The weighted-average number of diluted common shares outstanding in the fourth-quarter 2008 was 1.35 billion compared with 1.41 billion shares in the same period of 2007.

Full-Year 2008 Results

Diluted earnings of $8.93 per share, up 24 percent as reported; Total revenues of $103.6 billion, up 5 percent, 2 percent adjusting for currency; Global Technology Services revenues up 9 percent, 6 percent adjusting for currency; pre-tax income up 30 percent; Global Business Services revenues up 9 percent, 5 percent adjusting for currency; pre-tax income up 30 percent; Software revenues up 11 percent, 8 percent adjusting for currency; pre-tax income up 18 percent.

Income from continuing operations for the year ended December 31, 2008 was $12.3 billion compared with $10.4 billion in the year-ago period, an increase of 18 percent. Diluted earnings were $8.93 per share compared with $7.18 per diluted share in 2007, an increase of 24 percent. Revenues from continuing operations for 2008 totaled $103.6 billion, an increase of 5 percent (2 percent, adjusting for currency), compared with $98.8 billion in 2007.

From a geographic perspective, the America's full-year revenues were $42.8 billion, an increase of 4 percent as reported (4 percent, adjusting for currency) from the 2007 period. Revenues from Europe/Middle East/Africa were $37.0 billion, an increase of 7 percent (3 percent, adjusting for currency). Asia-Pacific revenues increased 8 percent (2 percent, adjusting for currency) to $21.1 billion. OEM revenues were $2.7 billion, down 22 percent compared with 2007. Revenues from the company's growth markets organization increased 10 percent (10 percent, adjusting for currency) and represented 18 percent of geographic revenues.

Revenues from the Global Technology Services segment totaled $39.3 billion, an increase of 9 percent (6 percent, adjusting for currency) compared with 2007. Revenues from the Global Business Services segment were $19.6 billion, up 9 percent (5 percent, adjusting for currency). Total services signings were $57.2 billion. Software segment revenues in 2008 totaled $22.1 billion, an increase of 11 percent (8 percent, adjusting for currency). Systems and Technology segment revenues were $19.3 billion, a decrease of 10 percent (11 percent, adjusting for currency). Global Financing segment revenues totaled $2.6 billion, an increase of 2 percent (essentially flat, adjusting for currency).

IBM ended 2008 with $12.9 billion of cash on hand and generated free cash flow of $14.3 billion, up $1.9 billion year over year, excluding Global Financing receivables. The balance sheet remains strong, and the company is well positioned to take advantage of opportunities.

Shares repurchased totaled approximately $10.6 billion on a cash-paid basis in 2008. The weighted-average number of diluted common shares outstanding in 2008 was 1.38 billion compared with 1.45 billion shares in 2007. As of December 31, 2008, there were 1.34 billion basic common shares outstanding.

Debt, including Global Financing, totaled $33.9 billion, compared with $35.3 billion at year-end 2007. From a management segment view, Global Financing debt totaled $24.4 billion versus $24.5 billion at year-end 2007, resulting in a debt-to-equity ratio of 7.0 to 1. Non-global financing debt totaled $9.6 billion, a decrease of $1.2 billion since year-end 2007. This decrease coupled with a non-cash adjustment related to year-end pension remeasurements, which is reflected as a reduction in stockholders' equity, resulted in a debt-to-capitalization ratio of 49.0 percent as compared to 30.0 percent at year-end 2007.

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, including the company's failure to continue to develop and market new and innovative products and services and to keep pace with technological change; competitive pressures; failure to obtain or protect intellectual property rights; breaches of the company's data security measures; changes in the economic environment and corporate IT spending budgets; fluctuations in revenues and purchases, and volatility of stock prices; the company's ability to attract and retain key personnel and its reliance on critical skills; adverse affects from tax matters; environmental matters; currency fluctuations and customer financing risks; customer credit risk on receivables; risks from investing in growth opportunities; the company's failure to maintain the adequacy of its internal controls; the company's use of certain estimates and assumptions; dependence on certain suppliers; changes in the financial or business condition of the company's distributors or resellers; the company's ability to successfully manage acquisitions and alliances; failure to have sufficient insurance; legal, political, health and economic conditions; risk factors related to IBM securities; and other risks, uncertainties and factors discussed in the company's Form 10-Q, Form 10-K and in the company's other filings with the U.S. Securities and Exchange Commission (SEC) or in materials incorporated therein by reference. The company assumes no obligation to update or revise any forward-looking statements.

Presentation of Information in this Press Release

In an effort to provide investors with additional information regarding the company's results as determined by generally accepted accounting principles (GAAP), the company has also disclosed in this press release the following non-GAAP information which management believes provides useful information to investors:

IBM Results -

adjusting for free cash flow; adjusting for currency (i.e., at constant currency); adjusting for estimated acquisitions impacts.

The rationale for management's use of non-GAAP measures is included as part of the supplementary materials presented within the fourth-quarter earnings materials. These materials are available on the IBM investor relations Web site at www.ibm.com/investor and are being included in Attachment II ("Non-GAAP Supplementary Materials") to the Form 8-K that includes this press release and is being submitted today to the SEC.

Conference Call and Webcast

IBM's regular quarterly earnings conference call is scheduled to begin at 4:30 p.m. EST, today. Investors may participate by viewing the Webcast at www.ibm.com/investor/4q08. Presentation charts will be available on the Web site prior to the Webcast.

Financial Results Below (certain amounts may not add due to use of rounded numbers; percentages presented are calculated from the underlying whole- dollar amounts).

INTERNATIONAL BUSINESS MACHINES CORPORATION
COMPARATIVE FINANCIAL RESULTS
(Dollars in millions except per share amounts)
		Three Months									Twelve Months
		Ended December 31,									Ended December 31,
								Percent									Percent
		2008			2007			Change			2008			2007			Change
REVENUE
Global Technology
Services		$9,623			$9,997			-3.7	%		$39,264			$36,103			8.8	%
Gross margin		34.9	%		30.1	%					32.6	%		29.9	%
Global Business
Services		4,709			4,933			-4.5	%		19,628			18,041			8.8	%
Gross margin		28.7	%		23.1	%					26.7	%		23.5	%
Systems and
Technology		5,425			6,796			-20.2	%		19,287			21,317			-9.5	%
Gross margin		39.9	%		45.7	%					38.1	%		39.7	%
Software		6,420			6,259			2.6	%		22,089			19,982			10.5	%
Gross margin		87.7	%		87.1	%					85.4	%		85.2	%
Global Financing		660			668			-1.3	%		2,559			2,502			2.3	%
Gross margin		50.0	%		45.5	%					51.3	%		46.7	%
Other		169			212			-20.2	%		803			842			-4.6	%
Gross margin		61.6	%		-15.8	%					13.4	%		4.4	%
TOTAL REVENUE		27,006			28,866			-6.4	%		103,630			98,786			4.9	%
GROSS PROFIT		12,936			12,970			-0.3	%		45,661			41,729			9.4	%
Gross margin		47.9	%		44.9	%					44.1	%		42.2	%
EXPENSE AND OTHER
INCOME
S,G&A		5,832			6,016			-3.1	%		23,386			22,060			6.0	%
% of revenue		21.6	%		20.8	%					22.6	%		22.3	%
R,D&E		1,528			1,586			-3.6	%		6,337			6,153			3.0	%
% of revenue		5.7	%		5.5	%					6.1	%		6.2	%
Intellectual
property and custom
development income		(328	)		(236	)		38.7	%		(1,153	)		(958	)		20.4	%
Other (income)
and expense		(97	)		(98	)		-1.5	%		(298	)		(626	)		-52.4	%
Interest expense		192			214			-10.6	%		673			611			10.3	%
TOTAL EXPENSE AND
OTHER INCOME		7,127			7,481			-4.7	%		28,945			27,240			6.3	%
% of revenue		26.4	%		25.9	%					27.9	%		27.6	%
INCOME FROM
CONTINUING OPERATIONS
BEFORE INCOME TAXES		5,808			5,489			5.8	%		16,715			14,489			15.4	%
Pre-tax margin		21.5	%		19.0	%					16.1	%		14.7	%
Provision for
income taxes		1,382			1,537			-10.1	%		4,381			4,071			7.6	%
Effective tax
rate		23.8	%		28.0	%					26.2	%		28.1	%
INCOME FROM
CONTINUING
OPERATIONS		4,427			3,951			12.0	%		12,334			10,418			18.4	%
Net margin		16.4	%		13.7	%					11.9	%		10.5	%
DISCONTINUED
OPERATIONS
Income/(loss) from
discontinued opera-
tions		---			1						---			(0	)
NET INCOME		$4,427			$3,952			12.0	%		$12,334			$10,418			18.4	%
EARNINGS/(LOSS)PER
SHARE OF COMMON
STOCK:
ASSUMING DILUTION
CONTINUING
OPERATIONS		$3.28			$2.80			17.1	%		$8.93			$7.18			24.4	%
DISCONTINUED
OPERATIONS		---			0.00						---			(0.00	)
TOTAL		$3.28			$2.80			17.1	%		$8.93			$7.18			24.4	%
BASIC
CONTINUING
OPERATIONS		$3.31			$2.85			16.1	%		$9.07			$7.32			23.9	%
DISCONTINUED
OPERATIONS		---			0.00						---			(0.00	)
TOTAL		$3.31			$2.86			15.7	%		$9.07			$7.32			23.9	%
WEIGHTED-AVERAGE
NUMBER OF COMMON
SHARES OUT-
STANDING (M's)
ASSUMING DILUTION		1,347.9			1,412.9						1,381.8			1,450.6
BASIC		1,339.1			1,384.1						1,359.8			1,423.0

INTERNATIONAL BUSINESS MACHINES CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
		At		At
(Dollars in millions)		December 31,		December 31,		Percent
		2008		2007		Change
ASSETS
Cash, cash equivalents,
and marketable securities		$12,907		$16,146		-20.1	%
Receivables - net, inventories,
prepaid expenses		36,097		37,031		-2.5	%
Plant, rental machines,
and other property - net		14,305		15,081		-5.1	%
Investments and other assets		46,215		52,172		-11.4	%
TOTAL ASSETS		$109,524		$120,431		-9.1	%
LIABILITIES AND STOCKHOLDERS' EQUITY
Total debt		$33,926		$35,274		-3.8	%
Accounts payable, taxes,
and accruals		31,199		32,076		-2.7	%
Other liabilities		30,934		24,612		25.7	%
TOTAL LIABILITIES		96,058		91,962		4.5	%
STOCKHOLDERS' EQUITY*		13,465		28,470		-52.7	%
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY		$109,524		$120,431		-9.1	%
* Reflects a non-cash adjustment related to year-end pension remeasurements
in both 2008 and 2007, as required by FAS 158 , "Employers' Accounting
for Defined Benefit Pension and Other Postretirement Plans."

INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
		FOURTH-QUARTER 2008
											Pre-tax
											Income
											(Loss)
											From
(Dollars in millions)		---------			Revenue			---------			Continuing			Pre-tax
		External			Internal			Total			Operations			Margin
SEGMENTS
Global Technology Services		$9,623			$383			$10,007			$1,437			14.4	%
Y-T-Y Change		-3.7	%		-2.4	%		-3.7	%		35.5	%
Global Business Services		4,709			267			4,977			740			14.9	%
Y-T-Y Change		-4.5	%		-6.9	%		-4.7	%		26.0	%
Systems and Technology		5,425			249			5,674			722			12.7	%
Y-T-Y Change		-20.2	%		3.8	%		-19.4	%		-47.1	%
Software		6,420			720			7,139			2,789			39.1	%
Y-T-Y Change		2.6	%		1.0	%		2.4	%		14.6	%
Global Financing		660			525			1,184			452			38.2	%
Y-T-Y Change		-1.3	%		18.0	%		6.4	%		32.4	%
TOTAL REPORTABLE SEGMENTS		26,837			2,144			28,981			6,140			21.2	%
Y-T-Y change		-6.3	%		3.2	%		-5.7	%		6.1	%
Eliminations / Other		169			(2,144	)		(1,975	)		(331	)
TOTAL IBM CONSOLIDATED		$27,006			$0			$27,006			$5,808			21.5	%
Y-T-Y Change		-6.4	%					-6.4	%		5.8	%
		FOURTH-QUARTER 2007
											Pre-tax
											Income
											(Loss)
											From
(Dollars in millions)		---------			Revenue			---------			Continuing			Pre-tax
		External			Internal			Total			Operations			Margin
SEGMENTS
Global Technology Services		$9,997			$393			$10,390			$1,061			10.2	%
Global Business Services		4,933			287			5,220			588			11.3	%
Systems and Technology		6,796			240			7,036			1,364			19.4	%
Software		6,259			712			6,971			2,433			34.9	%
Global Financing		668			445			1,113			341			30.7	%
TOTAL REPORTABLE SEGMENTS		28,654			2,077			30,731			5,787			18.8	%
Eliminations / Other		212			(2,077	)		(1,865	)		(298	)
TOTAL IBM CONSOLIDATED		$28,866			$0			$28,866			$5,489			19.0	%

INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
		TWELVE-MONTHS 2008
											Pre-tax
											Income
											(Loss)
											From
(Dollars in millions)		---------			Revenue			--------			Continuing			Pre-tax
		External			Internal			Total			Operations			Margin
SEGMENTS
Global Technology Services		$39,264			$1,546			$40,810			$4,607			11.3	%
Y-T-Y Change		8.8	%		-5.5	%		8.1	%		29.5	%
Global Business Services		19,628			1,044			20,671			2,681			13.0	%
Y-T-Y Change		8.8	%		-12.5	%		7.5	%		29.9	%
Systems and Technology		19,287			882			20,169			1,550			7.7	%
Y-T-Y Change		-9.5	%		-11.7	%		-9.6	%		-28.0	%
Software		22,089			2,761			24,850			7,075			28.5	%
Y-T-Y Change		10.5	%		14.3	%		10.9	%		17.9	%
Global Financing		2,559			1,892			4,451			1,617			36.3	%
Y-T-Y Change		2.3	%		27.7	%		11.7	%		16.7	%
TOTAL REPORTABLE SEGMENTS		102,827			8,125			110,951			17,531			15.8	%
Y-T-Y Change		5.0	%		5.2	%		5.0	%		15.6	%
Eliminations / Other		803			(8,125	)		(7,322	)		(815	)
TOTAL IBM CONSOLIDATED		$103,630			$0			$103,630			$16,715			16.1	%
Y-T-Y Change		4.9	%					4.9	%		15.4	%
		TWELVE-MONTHS 2007
											Pre-tax
											Income
											(Loss)
											From
(Dollars in millions)		---------			Revenue			--------			Continuing			Pre-tax
		External			Internal			Total			Operations			Margin
SEGMENTS
Global Technology Services		$36,103			$1,636			$37,739			$3,557			9.4	%
Global Business Services		18,041			1,193			19,234			2,064			10.7	%
Systems and Technology		21,317			998			22,315			2,153			9.6	%
Software		19,982			2,416			22,398			6,002			26.8	%
Global Financing		2,502			1,482			3,984			1,386			34.8	%
TOTAL REPORTABLE SEGMENTS		97,944			7,726			105,670			15,163			14.3	%
Eliminations / Other		842			(7,726	)		(6,884	)		(674	)
TOTAL IBM CONSOLIDATED		$98,786			$0			$98,786			$14,489			14.7	%

IBM

Michael Fay, 914-499-6107

mikefay@us.ibm.com

or

John Bukovinsky, 732-618-3531

jbuko@us.ibm.com

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