IBM Reports 2007 Third-Quarter Results
IBM (NYSE: IBM) today announced third-quarter 2007 diluted
earnings of $1.68 per share from continuing operations compared with
diluted earnings of $1.45 per share in the third quarter of 2006, an
increase of 16 percent as reported. Third- quarter income from
continuing operations was $2.4 billion compared with $2.2 billion in
the third quarter of 2006, an increase of 6 percent. Total revenues
for the third quarter of 2007 of $24.1 billion increased 7 percent (3
percent, adjusting for currency) from the third quarter of 2006.
"Our outstanding services results this quarter enabled us to stay
on track toward our objective of accelerated earnings per share growth
through 2010, while we work through a transition in our hardware
business," said Samuel J. Palmisano, IBM chairman, president and chief
executive officer. "Our year-to-date performance underscores the
strength of major elements of our long-term roadmap, including revenue
growth, margin expansion, and continued success in emerging market
countries and in the integration of our acquisitions."
From a geographic perspective, the Americas' third-quarter
revenues were $10.2 billion, an increase of 4 percent as reported (3
percent, adjusting for currency) from the 2006 period. Revenues from
Europe/Middle East/Africa were $8.1 billion, up 11 percent (4 percent,
adjusting for currency). Asia-Pacific revenues increased 9 percent (6
percent, adjusting for currency) to $4.9 billion. OEM revenues were
$890 million, down 12 percent compared with the 2006 third quarter.
Total Global Services revenues grew 14 percent (10 percent,
adjusting for currency) -- the highest growth since third quarter of
2003 -- with strong performance in all geographic regions and business
sectors. Global Business Services segment revenues, marked by
significant growth in core consulting and application management
services, increased 16 percent (12 percent, adjusting for currency) to
$4.6 billion. Global Technology Services segment revenues increased 13
percent (9 percent, adjusting for currency) to $9.1 billion,
benefiting from sales of new business to existing clients. IBM signed
services contracts totaling $11.8 billion, up 12 percent year over
year, and ended the third quarter with an estimated services backlog,
including Strategic Outsourcing, Business Transformation Outsourcing,
Integrated Technology Services, Global Business Services and
Maintenance, of $116 billion, an increase of $7 billion year to year.
Revenues from the Systems and Technology segment totaled $4.9
billion for the quarter, down 10 percent (13 percent, adjusting for
currency). Revenues decreased 6 percent excluding the year-to-year
impact of the Printing System Division divestiture in June 2007.
Systems and Technology revenues from the System p UNIX server products
increased 6 percent compared with the 2006 period and revenues from
the System x servers increased 6 percent. Faced with a difficult
comparison, revenues from System z server products decreased 31
percent versus the year-ago period. Total delivery of System z
computing power, which is measured in MIPS (millions of instructions
per second), decreased 21 percent. Revenues from the System i servers
decreased 21 percent. Revenues from System Storage increased 1 percent
and revenues from Microelectronics decreased 15 percent.
Revenues from the Software segment were $4.7 billion, an increase
of 7 percent (3 percent, adjusting for currency) compared with the
third quarter of 2006. Revenues from IBM's middleware products, which
primarily include WebSphere, Information Management, Tivoli, Lotus and
Rational products, were $3.6 billion, up 6 percent versus the third
quarter of 2006. Operating systems revenues of $564 million increased
2 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 increased 10 percent. Revenues for Information
Management software, which enables clients to leverage information on
demand, increased 9 percent. Revenues from Tivoli software,
infrastructure software that enables clients to centrally manage
networks including security and storage capability, increased 5
percent, and revenues for Lotus software, which allows collaborating
and messaging by clients in real-time communication and knowledge
management, increased 9 percent year over year. Revenues from Rational
software, integrated tools to improve the processes of software
development, increased 3 percent compared with the year-ago quarter.
Global Financing segment revenues increased 6 percent (2 percent,
adjusting for currency) in the third quarter to $623 million.
The company's total gross profit margin was 41.3 percent in the
2007 third quarter compared with 42.0 percent in the 2006 period.
Total expense and other income increased 6 percent to $6.7 billion
compared to $6.3 billion in the prior-year period. SG&A expense
increased 4 percent to $5.3 billion. RD&E expense decreased 1 percent
to $1.5 billion compared with the year-ago period. Intellectual
property and custom development income increased to $270 million
compared with $242 million a year ago. Other (income) and expense
contributed income of $95 million in the third quarter of 2007 versus
income of $174 million in the third quarter of 2006. Interest expense
increased to $193 million compared with $70 million in the prior-year
period, primarily due to the increase in debt to finance the company's
accelerated share repurchase agreements executed in the prior quarter.
IBM's effective tax rate in the third-quarter 2007 was 28.0
percent compared with 30.0 percent in the third quarter of 2006.
The weighted-average number of diluted common shares outstanding
in the third-quarter 2007 was 1.41 billion compared with 1.53 billion
shares in the same period of 2006. As of September 30, 2007, there
were 1.38 billion basic common shares outstanding.
Debt, including Global Financing, totaled $35.3 billion, compared
with $22.7 billion at year-end 2006. From a management segment view,
Global Financing debt increased $1.5 billion from year-end 2006 to a
total of $23.8 billion, resulting in a debt-to-equity ratio of 6.8 to
1. The non-global financing debt-to-capitalization ratio was 40.3
percent at the end of September 30, 2007 compared with 46.7 percent at
the end of the second quarter, which reflects increased financial
leverage associated with the accelerated share repurchase agreements.
The cash balance was $13.8 billion at the end of the third quarter.
Year-To-Date 2007 Results
Income from continuing operations for the nine months ended
September 30, 2007 was $6.5 billion compared with $6.0 billion in the
year-ago period. Diluted earnings per share from continuing operations
were $4.42 compared with $3.81 per diluted share for the 2006 period.
Revenues from continuing operations for the nine-month period totaled
$69.9 billion, an increase of 7 percent (4 percent, adjusting for
currency) compared with $65.2 billion for the nine months of 2006.
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; fluctuations in
revenues and purchases, and volatility of stock prices; the company's
ability to attract and retain key personnel; adverse affects from tax
matters; environmental matters; currency fluctuations and customer
financing risks; customer credit risk on trade 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 revenues from the Printing System Division
divestiture;
-- adjusting for currency (i.e., at constant currency).
The rationale for management's use of non-GAAP measures is
included as part of the supplementary materials presented within the
third-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. EDT, today. Investors may participate by viewing
the Webcast at www.ibm.com/investor/3q07. Presentation charts will be
available on the Web site prior to the Webcast.
Financial Results Attached (certain amounts may not add due to use
of rounded numbers; percentages presented are calculated from the
underlying whole-dollar amounts).
-0-
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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
2007 2006 Change 2007 2006 Change
------ ------ ------- ------- ------- -------
REVENUE
Global Technology
Services $9,093 $8,058 12.8% $26,106 $23,732 10.0%
Gross margin 30.6% 30.2% 29.9% 29.7%
Global Business
Services 4,586 3,959 15.9% 13,108 11,746 11.6%
Gross margin 22.9% 22.8% 23.7% 22.6%
Systems and
Technology 4,898 5,466 -10.4% 14,520 14,900 -2.5%
Gross margin 38.5% 38.2% 36.9% 35.8%
Software 4,694 4,406 6.5% 13,723 12,554 9.3%
Gross margin 84.2% 85.3% 84.3% 84.6%
Global Financing 623 587 6.1% 1,834 1,744 5.1%
Gross margin 44.6% 48.6% 47.2% 50.8%
Other 225 141 59.3% 630 491 28.4%
Gross margin 2.7% 13.6% 11.2% 9.4%
TOTAL REVENUE 24,119 22,617 6.6% 69,920 65,166 7.3%
GROSS PROFIT 9,956 9,492 4.9% 28,760 26,594 8.1%
Gross margin 41.3% 42.0% 41.1% 40.8%
EXPENSE AND OTHER INCOME
S,G&A 5,324 5,121 4.0% 16,044 14,639 9.6%
% of revenue 22.1% 22.6% 22.9% 22.5%
R,D&E 1,524 1,543 -1.2% 4,568 4,520 1.1%
% of revenue 6.3% 6.8% 6.5% 6.9%
Intellectual property
and custom development
income (270) (242) 11.7% (721) (659) 9.4%
Other (income)
and expense (95) (174) -45.2% (528) (616) -14.3%
Interest expense 193 70 177.9% 396 207 91.1%
TOTAL EXPENSE AND
OTHER INCOME 6,676 6,317 5.7% 19,759 18,091 9.2%
% of revenue 27.7% 27.9% 28.3% 27.8%
INCOME FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES 3,280 3,174 3.3% 9,001 8,503 5.9%
Pre-tax margin 13.6% 14.0% 12.9% 13.0%
Provision for
income taxes 918 952 -3.6% 2,534 2,551 -0.7%
Effective tax
rate 28.0% 30.0% 28.2% 30.0%
INCOME FROM CONTINUING
OPERATIONS $2,362 $2,222 6.3% $6,467 $5,952 8.7%
Net margin 9.8% 9.8% 9.2% 9.1%
DISCONTINUED OPERATIONS
Loss from discontinued
operations (1) (0) (1) (0)
NET INCOME $2,361 $2,222 6.3% $6,466 $5,952 8.6%
====== ====== ====== ======
EARNINGS/(LOSS)PER SHARE
OF COMMON STOCK:
ASSUMING DILUTION
CONTINUING
OPERATIONS $1.68 $1.45 15.9% $4.42 $3.81 16.0%
DISCONTINUED
OPERATIONS (0.00) (0.00) (0.00) (0.00)
------ ------ ------ ------
TOTAL $1.68 $1.45 15.9% $4.42 $3.81 16.0%
====== ====== ====== ======
BASIC
CONTINUING
OPERATIONS $1.72 $1.47 17.0% $4.50 $3.87 16.3%
DISCONTINUED
OPERATIONS (0.00) (0.00) (0.00) (0.00)
------ ------ ------ ------
TOTAL $1.72 $1.47 17.0% $4.50 $3.87 16.3%
====== ====== ====== ======
WEIGHTED-AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING (M's)
ASSUMING DILUTION 1,405.8 1,534.3 1,463.1 1,560.5
BASIC 1,371.4 1,513.2 1,436.0 1,538.6
INTERNATIONAL BUSINESS MACHINES CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Unaudited)
At At
(Dollars in millions) September 30, December 31, Percent
2007 2006 Change
----------- ----------- -------
ASSETS
Cash, cash equivalents,
and marketable securities $13,822 $10,657 29.7%
Receivables - net, inventories,
prepaid expenses 32,766 34,003 -3.6%
Plant, rental machines,
and other property - net 14,836 14,440 2.7%
Investments and other assets 47,184 44,134 6.9%
-------- --------
TOTAL ASSETS $108,609 $103,234 5.2%
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt $16,546 $8,902 85.9%
Long-term debt 18,775 13,780 36.2%
-------- --------
Total debt 35,322 22,682 55.7%
Accounts payable, taxes,
and accruals 28,464 31,189 -8.7%
Other liabilities 24,277 20,857 16.4%
-------- --------
TOTAL LIABILITIES 88,063 74,728 17.8%
STOCKHOLDERS' EQUITY 20,546 28,506 -27.9%
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $108,609 $103,234 5.2%
======== ========
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
THIRD QUARTER 2007
----------------------------------------------
Pre-tax
Income
(Loss)
From
(Dollars in millions) --------- Revenue -------- Continuing Pre-tax
External Internal Total Operations Margin
-------- -------- ------- ---------- -------
SEGMENTS
Global Technology
Services $9,093 $408 $9,501 $1,028 10.8%
Y-T-Y Change 12.8% -4.6% 12.0% 26.3%
Global Business Services 4,586 276 4,862 521 10.7%
Y-T-Y Change 15.9% -18.0% 13.2% 28.6%
Systems and Technology 4,898 236 5,134 361 7.0%
Y-T-Y Change -10.4% -7.5% -10.3% -12.4%
Software 4,694 571 5,265 1,283 24.4%
Y-T-Y Change 6.5% 2.0% 6.0% -1.5%
Global Financing 623 348 970 339 34.9%
Y-T-Y Change 6.1% 3.2% 5.1% 1.1%
TOTAL REPORTABLE
SEGMENTS 23,894 1,838 25,732 3,532 13.7%
Y-T-Y Change 6.3% -4.1% 5.5% 8.1%
Eliminations / Other 225 (1,838) (1,613) (252)
TOTAL IBM CONSOLIDATED $24,119 $0 $24,119 $3,280 13.6%
Y-T-Y Change 6.6% 6.6% 3.3%
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%
Global Business Services 3,959 337 4,295 405 9.4%
Systems and Technology 5,466 255 5,721 413 7.2%
Software 4,406 559 4,965 1,302 26.2%
Global Financing 587 337 924 335 36.2%
TOTAL REPORTABLE
SEGMENTS 22,476 1,916 24,391 3,268 13.4%
Eliminations / Other 141 (1,916) (1,774) (94)
TOTAL IBM CONSOLIDATED $22,617 $0 $22,617 $3,174 14.0%
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
NINE MONTHS 2007
----------------------------------------------
Pre-tax
Income
(Loss)
From
(Dollars in millions) --------- Revenue -------- Continuing Pre-tax
External Internal Total Operations Margin
-------- -------- ------- ---------- -------
SEGMENTS
Global Technology
Services $26,106 $1,243 $27,348 $2,497 9.1%
Y-T-Y Change 10.0% -6.5% 9.1% 2.1%
Global Business Services 13,108 906 14,014 1,477 10.5%
Y-T-Y Change 11.6% -11.5% 9.7% 26.4%
Systems and Technology 14,520 758 15,279 789 5.2%
Y-T-Y Change -2.5% -6.0% -2.7% 35.7%
Software 13,723 1,704 15,427 3,569 23.1%
Y-T-Y Change 9.3% 5.4% 8.9% 2.6%
Global Financing 1,834 1,037 2,871 1,045 36.4%
Y-T-Y Change 5.1% -0.2% 3.1% -2.2%
TOTAL REPORTABLE
SEGMENTS 69,291 5,648 74,939 9,376 12.5%
Y-T-Y Change 7.1% -2.8% 6.3% 7.3%
Eliminations / Other 630 (5,648) (5,018) (375)
TOTAL IBM CONSOLIDATED $69,920 $0 $69,920 $9,001 12.9%
Y-T-Y Change 7.3% 7.3% 5.9%
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%
Global Business
Services 11,746 1,023 12,769 1,168 9.1%
Systems and Technology 14,900 807 15,706 582 3.7%
Software 12,554 1,616 14,170 3,478 24.5%
Global Financing 1,744 1,039 2,784 1,068 38.4%
TOTAL REPORTABLE
SEGMENTS 64,676 5,814 70,490 8,741 12.4%
Eliminations / Other 491 (5,814) (5,323) (239)
TOTAL IBM CONSOLIDATED $65,166 $0 $65,166 $8,503 13.0%
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