IBM today announced fourth-quarter 2006 diluted earnings of $2.26
per share from continuing operations, an increase of 12 percent as
reported, compared with diluted earnings of $2.01 per share in the
fourth quarter of 2005; the fourth-quarter 2005 diluted earnings
include $0.10 per share for a one- time pretax curtailment charge of
$267 million related to pension changes. Diluted earnings per share
for the fourth-quarter 2006 grew 7 percent compared with the year-ago
quarter of $2.11 per diluted share, without the one-time per share
charge. Fourth-quarter 2006 diluted earnings per share include a $0.06
benefit as a result of a lower tax rate.
Fourth-quarter income from continuing operations was $3.5 billion
compared with $3.2 billion in the fourth quarter of 2005, an increase
of 8 percent. Income from continuing operations for the fourth quarter
grew 2 percent compared with the fourth-quarter 2005 income from
continuing operations of $3.4 billion, excluding the one-time charge.
Total revenues for the fourth quarter of 2006 of $26.3 billion
increased 7 percent (4 percent, adjusting for currency) from the
fourth quarter of 2005.
Samuel J. Palmisano, IBM chairman, president and chief executive
officer, said: "IBM had a terrific quarter and a good year with record
cash performance, profit and EPS, as well as record payouts to
shareholders. We are well-positioned in the growth areas of a changing
IT industry, focused on our evolving business model, and poised for
long-term success for our clients and shareholders."
From a geographic perspective, the Americas fourth-quarter
revenues were $11.1 billion, an increase of 6 percent as reported (5
percent, adjusting for currency) from the 2005 period. Revenues from
Europe/Middle East/Africa were $9.3 billion, up 11 percent (3 percent,
adjusting for currency). Asia-Pacific revenues increased 7 percent (5
percent, adjusting for currency) to $4.8 billion. OEM revenues were
$1.0 billion, down 3 percent compared with the 2005 fourth quarter.
Revenues from the Software segment were $5.6 billion, an increase
of 14 percent (11 percent, adjusting for currency) compared with the
fourth quarter of 2005. Revenues from IBM's middleware brands, which
include WebSphere, Information Management, Tivoli, Lotus and Rational
products, were $4.4 billion, up 18 percent versus the fourth quarter
of 2005. Operating systems revenues decreased 2 percent to $642
million compared with the prior-year quarter. Revenues from other
software and services increased, which includes the Product Lifecycle
Management portfolio of products.
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 22 percent. Revenues for Information
Management software, which enables clients to leverage information on
demand, increased 28 percent. Revenues from Tivoli software,
infrastructure software that enables customers to centrally manage
networks including security and storage capability, increased 25
percent, and revenues for Lotus software, which allows collaborating
and messaging by customers in real-time communication and knowledge
management, increased 30 percent year over year. Revenues from
Rational software, integrated tools to improve the processes of
software development, increased 12 percent compared with the year-ago
quarter.
For the Global Services business, segment revenues from Global
Technology Services increased 7 percent (4 percent, adjusting for
currency) to $8.6 billion, and segment revenues from Global Business
Services increased 6 percent (3 percent, adjusting for currency) to
$4.2 billion. IBM signed services contracts totaling $17.8 billion, up
55 percent year over year, and ended the full year with an estimated
services backlog, including Strategic Outsourcing, Business
Transformation Outsourcing, Global Business Services, Integrated
Technology Services and Maintenance, of $116 billion, an increase of
$5 billion from the prior-year period.
Revenues from the Systems and Technology Group (S&TG) segment
totaled $7.1 billion for the quarter, up 3 percent (flat, adjusting
for currency). S&TG revenues from System z server products increased 5
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 6 percent. Revenues from the System p UNIX
server products increased 4 percent compared with the 2005 period.
Revenues from the System x servers increased 7 percent, and revenues
from the System i servers decreased 10 percent. Revenues from
Microelectronics decreased 6 percent and revenues from System Storage
increased 9 percent.
Global Financing segment revenues increased 3 percent (flat,
adjusting for currency) in the fourth quarter to $620 million.
The company's total gross profit margin was 44.6 percent in the
2006 fourth quarter compared with 44.1 percent in the 2005 period.
Total expense and other income increased 11 percent to $6.9
billion compared with the prior-year period. SG&A expense increased 7
percent to $5.6 billion. RD&E expense increased 9 percent compared
with the year-ago period. Intellectual property and custom development
income increased to $241 million compared with $228 million a year
ago. Other (income) and expense contributed income of $150 million in
the fourth quarter of 2006 versus income of $334 million in the fourth
quarter of 2005. In the fourth quarter of last year, gains on real
estate transactions were unusually high due to several large
transactions compared with real estate activity in the fourth quarter
of this year, resulting in a decrease of $140 million year to year.
IBM's effective tax rate in the fourth-quarter 2006 was 28.0
percent compared with 29.5 percent in the fourth quarter of 2005. The
decrease in the tax rate was caused by the favorable effect of several
items in the quarter, including the retroactive reinstatement of the
U.S. research tax credit and changes in the mix of income in various
tax jurisdictions.
For total operations, net income for the fourth-quarter 2006 was
$3.5 billion, or $2.31 per diluted share, which included a gain from
discontinued operations related to country tax settlements of $76
million, compared with the fourth quarter of 2005 net income of $3.2
billion, or $1.99 per diluted share, which included a gain from
discontinued operations of $3 million and a charge for the cumulative
effect of the FASB Interpretation No. 47 accounting change of $36
million.
Share repurchases totaled approximately $1.4 billion in the fourth
quarter. The weighted-average number of diluted common shares
outstanding in the fourth-quarter 2006 was 1.53 billion compared with
1.60 billion shares in the same period of 2005.
Full-Year 2006 Results
-- Total revenue of $91.4 billion, up 4 percent excluding the
divested PC business;
-- Income from continuing operations of $9.4 billion, up 18
percent as reported, or up 9 percent excluding 2005
non-recurring items;
-- Diluted earnings of $6.06 per share from continuing
operations, up 23 percent as reported, or up 14 percent
excluding 2005 non- recurring items;
-- Net cash from operations of $15.3 billion, up $2.2 billion,
excluding Global Financing receivables.
Diluted earnings per share from continuing operations were $6.06
compared with $4.91 per diluted share for the 2005 period, including
$0.40 per diluted share for the one-time items, an increase of 23
percent. Without the one-time items in 2005, diluted earnings in 2006
increased $0.74 per share, or 14 percent versus the comparable period
last year.
Income from continuing operations for the year ended December 31,
2006 was $9.4 billion, compared with $8.0 billion in the year-ago
period, or up 18 percent, which includes a charge of $525 million for
taxes in connection with the 2005 repatriation of foreign earnings,
and non- recurring pretax items for a curtailment charge of $267
million relating to the pension change and incremental restructuring
charges of $1.7 billion, offset by the $1.1 billion gain on the sale
of the Personal Computing (PC) business, and the $775 million legal
settlement received from Microsoft. Excluding the non-recurring items
and tax charge for 2005, the growth for income from continuing
operations was 9 percent year over year.
Revenues from continuing operations for 2006 totaled $91.4
billion, essentially flat as reported and adjusting for currency
compared with $91.1 billion for 2005, which includes PC revenues of
$2.9 billion for the first four months of 2005 only. Excluding the
divested PC business, revenues increased 4 percent (3 percent,
adjusting for currency) compared with the 2005 period.
From a geographic perspective, the Americas full-year revenues
were $39.5 billion, an increase of 2 percent as reported (4 percent,
adjusting for currency and PCs) from the 2005 period. Revenues from
Europe/Middle East/Africa were $30.5 billion, essentially flat (up 2
percent, adjusting for currency and PCs). Asia-Pacific revenues
decreased 6 percent (up 2 percent, adjusting for currency and PCs) to
$17.6 billion. OEM revenues were $3.9 billion, up 18 percent compared
with 2005.
Software segment revenues in 2006 totaled $18.2 billion, an
increase of 8 percent (7 percent, adjusting for currency). Revenues
from the Global Technology Services segment totaled $32.3 billion, an
increase of 3 percent (2 percent, adjusting for currency) compared
with 2005. Revenues from the Global Business Services segment were
$16.0 billion, flat (up 1 percent, adjusting for currency). S&TG
segment revenues were $22.0 billion, an increase of 5 percent (4
percent, adjusting for currency). Global Financing revenues totaled
$2.4 billion, a decrease of 2 percent (2 percent, adjusting for
currency).
For total operations, net income for 2006 was $9.5 billion, or
$6.11 per diluted share, which included a gain from discontinued
operations related to country tax settlements of $76 million, compared
with the 2005 net income of $7.9 billion, or $4.87 per diluted share,
which included a loss from discontinued operations of $24 million and
a charge for the cumulative effect of the FASB Interpretation No. 47
accounting change of $36 million.
IBM ended 2006 with $10.7 billion of cash on hand and net cash
provided from operations, excluding the year-to-year change in Global
Financing receivables, was $15.3 billion - an increase of $2.2 billion
from last year. The balance sheet remains strong, and the company is
well positioned to take advantage of opportunities.
In December, the company adopted Statement of Financial Accounting
Standards No. 158 (SFAS 158), new accounting guidance related to
pension and other postretirement plans released by the Financial
Accounting Standards Board in September 2006. This accounting standard
requires companies to recognize the funded status of their
postretirement plans in the statement of financial position (or
balance sheet). The funded status is measured as the difference
between the value of pension plan assets and the company's benefit
obligations to its current and retired employees. The adoption of SFAS
158 at December 31, 2006 reduced the company's assets by $9.2 billion,
increased its liabilities by $0.3 billion and reduced stockholders'
equity by $9.5 billion. These changes to the company's financial
statements were non-cash and will have no impact on the company's
existing debt covenants, credit ratings or financial flexibility.
Share repurchases totaled approximately $8.0 billion in 2006. The
weighted-average number of diluted common shares outstanding in 2006
was 1.55 billion compared with 1.63 billion shares in 2005. As of
December 31, 2006, there were 1.51 billion basic common shares
outstanding.
Debt, including Global Financing, totaled $22.7 billion, compared
with $22.6 billion at year-end 2005. From a management segment view,
the non-global financing debt-to-capitalization ratio was 1.5 percent
at the end of 2006, and Global Financing debt increased $1.8 billion
from year-end 2005 to a total of $22.3 billion, resulting in a
debt-to- equity ratio of 6.9 to 1.
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; quarterly fluctuations
in revenues and volatility of stock prices; the company's ability to
attract and retain key personnel; adverse affects from tax matters;
currency fluctuations and customer financing risks; customer credit
risk on trade receivables; 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:
-- without non-recurring and unique items;
-- without divested PC business;
-- adjusting for currency (i.e., at constant current);
-- net cash from operations excluding Global Financing
receivables.
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/4q06. Presentation charts will be
available on the Web site prior to the Webcast.
Financial Results Attached (amounts may not total due to rounding)
-0-
*T
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
2006 2005* Change 2006 2005* Change
------- ------- ------- ------- ------- -------
REVENUE
Global Services $12,769 $12,000 6.4% $48,247 $47,407 1.8%
Gross margin 27.9% 27.4% 27.5% 26.0%
Hardware 7,193 6,897 4.3% 22,499 24,343 -7.6%
Gross margin 41.0% 42.0% 37.0% 35.1%
Software 5,651 4,901 15.3% 18,204 16,830 8.2%
Gross margin 86.5% 86.3% 85.2% 84.9%
Global Financing 625 605 3.3% 2,379 2,407 -1.1%
Gross margin 48.7% 57.4% 50.3% 54.7%
Other 19 24 -18.6% 94 147 -36.4%
Gross margin -28.6% 12.6% -13.2% 45.2%
TOTAL REVENUE 26,257 24,427 7.5% 91,424 91,134 0.3%
GROSS PROFIT 11,701 10,765 8.7% 38,295 36,532 4.8%
Gross margin 44.6% 44.1% 41.9% 40.1%
EXPENSE AND OTHER INCOME
S,G&A 5,620 5,252 7.0% 20,259 21,314 -4.9%
% of revenue 21.4% 21.5% 22.2% 23.4%
R,D&E 1,587 1,459 8.8% 6,107 5,842 4.5%
% of revenue 6.0% 6.0% 6.7% 6.4%
Intellectual property
and custom development
income (241) (228) 5.8% (900) (948) -5.0%
Other (income)
and expense (150) (334) -55.0% (766) (2,122) -63.9%
Interest expense 71 48 48.0% 278 220 26.6%
TOTAL EXPENSE AND
OTHER INCOME 6,887 6,197 11.1% 24,978 24,306 2.8%
% of revenue 26.2% 25.4% 27.3% 26.7%
INCOME FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES 4,814 4,568 5.4% 13,317 12,226 8.9%
Pretax margin 18.3% 18.7% 14.6% 13.4%
Provision for
income taxes 1,350 1,348 0.2% 3,901 4,232 -7.8%
Effective tax
rate 28.0% 29.5% 29.3% 34.6%
INCOME FROM CONTINUING
OPERATIONS 3,464 3,220 7.6% 9,416 7,994 17.8%
Net margin 13.2% 13.2% 10.3% 8.8%
DISCONTINUED OPERATIONS
Income/(loss) from
discontinued opera-
tions 76 3 76 (24)
CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING
PRINCIPLE** -- (36) -- (36)
NET INCOME $3,541 $3,187 11.1% $9,492 $7,934 19.6%
====== ====== ====== ======
EARNINGS/(LOSS)PER SHARE
OF COMMON STOCK:
ASSUMING DILUTION
CONTINUING
OPERATIONS $2.26 $2.01 12.4% $6.06 $4.91 23.4%
DISCONTINUED
OPERATIONS 0.05 0.00 0.05 (0.01)
CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING
PRINCIPLE -- (0.02) -- (0.02)
------ ------ ------ ------
TOTAL $2.31 $1.99 16.1% $6.11 $4.87 25.5%
====== ====== ====== ======
BASIC
CONTINUING
OPERATIONS $2.30 $2.04 12.7% $6.15 $4.99 23.2%
DISCONTINUED
OPERATIONS 0.05 0.00 0.05 (0.02)
CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING
PRINCIPLE -- (0.02) -- (0.02)
------ ------ ------ ------
TOTAL $2.35 $2.02 16.4% $6.20 $4.96 25.0%
====== ====== ====== ======
WEIGHTED-AVERAGE NUMBER
COMMON SHARES OUT-
STANDING (M's)
ASSUMING DILUTION 1,532.5 1,604.8 1,553.5 1,627.6
BASIC 1,507.3 1,578.5 1,530.8 1,600.6
* The company filed a Form 8-K with the U.S. SEC on June 13, 2006 to
reclassify its historical financial statements and related footnotes
to reflect changes to its management system in the first quarter of
2006.
** Change in accounting principle related to the adoption of FASB
Interpretation No. 47,"Accounting for Conditional Asset Retirement
Obligations - an interpretation of FASB Statement No. 143."
INTERNATIONAL BUSINESS MACHINES CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At At
(Dollars in millions) December 31, December 31, Percent
2006* 2005 Change
------------ ----------- -------
ASSETS
Cash, cash equivalents,
and marketable securities $10,657 $13,686 -22.1%
Receivables - net, inventories,
prepaid expenses 34,003 31,975 6.3%
Plant, rental machines,
and other property - net 14,440 13,756 5.0%
Investments and other assets 44,134 46,331 -4.7%
-------- --------
TOTAL ASSETS $103,234 $105,748 -2.4%
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt $8,902 $7,216 23.4%
Long-term debt 13,780 15,425 -10.7%
-------- --------
Total debt 22,682 22,641 0.2%
Accounts payable, taxes,
and accruals 31,189 27,936 11.6%
Other liabilities 20,857 22,073 -5.5%
-------- --------
TOTAL LIABILITIES 74,728 72,650 2.9%
STOCKHOLDERS' EQUITY 28,506 33,098 -13.9%
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $103,234 $105,748 -2.4%
======== ========
* In December, the company adopted FASB Statement of Financial
Accounting Standards No. 158, a new accounting guidance related to
pension and other postretirement plans, resulting in the reduction of
assets by $9,240 million, increased liabilities by $257 million and
reduced stockholders' equity by $9,498 million.
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
FOURTH QUARTER 2006
-----------------------------------------------
Pretax
Income
(Loss)
From
(Dollars in millions) --------- Revenue -------- Continuing Pretax
External Internal Total Operations Margin
-------- -------- ------ ---------- -------
SEGMENTS
Global Technology
Services* $8,590 $435 $9,025 $843 9.3%
% change 7.1% -6.6% 6.3% -23.7%
Global Business Services 4,223 349 4,572 538 11.8%
% change 6.1% 13.6% 6.6% 32.2%
Systems and Technology
Group 7,070 362 7,432 1,158 15.6%
% change 3.2% 2.1% 3.2% -4.2%
Software** 5,607 632 6,239 2,015 32.3%
% change 14.4% 13.6% 14.3% 4.1%
Global Financing 620 488 1,108 387 34.9%
% change 2.9% -1.0% 1.1% -21.0%
Personal Computing
Division 0 0 0 0 0.0%
TOTAL REPORTABLE
SEGMENTS 26,111 2,266 28,377 4,940 17.4%
% change 7.2% 4.1% 7.0% -4.0%
Eliminations / Other 147 (2,266) (2,120) (126)
TOTAL IBM CONSOLIDATED $26,257 $0 $26,257 $4,814 18.3%
% change 7.5% 7.5% 5.4%
FOURTH QUARTER 2005***
-----------------------------------------------
Pretax
Income
(Loss)
From
(Dollars in millions) --------- Revenue -------- Continuing Pretax
External Internal Total Operations Margin
-------- -------- ------ ---------- -------
SEGMENTS
Global Technology
Services $8,020 $467 $8,487 $1,104 13.0%
Global Business Services 3,980 307 4,287 406 9.5%
Systems and Technology
Group 6,849 355 7,204 1,209 16.8%
Software 4,901 556 5,457 1,935 35.5%
Global Financing 603 493 1,096 491 44.8%
Personal Computing
Division 0 0 0 0 0.0%
TOTAL REPORTABLE
SEGMENTS 24,353 2,178 26,531 5,145 19.4%
Eliminations / Other 74 (2,178) (2,103) (578)
TOTAL IBM CONSOLIDATED $24,427 $0 $24,427 $4,568 18.7%
* Includes revenue for acquisitions managed by the Global Technology
Services segment but reported as Software revenue in the comparative
financial results exhibit.
** Excludes revenue from acquisitions reported as Software revenue in
the comparative financial results exhibit but managed by the Global
Technology Services segment.
*** The company filed a Form 8-K with the U.S. SEC on June 13, 2006 to
reclassify its financial statements and related footnotes to reflect
changes to its management system effective as of the first quarter
of 2006, including the separation of the Global Services segment into
two new reportable segments: Global Technology Services and Global
Business Services, as well as the reclassification of Enterprise
Investments to other reportable segments.
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
TWELVE MONTHS 2006
-----------------------------------------------
Pretax
Income
(Loss)
From
(Dollars in millions) --------- Revenue -------- Continuing Pretax
External Internal Total Operations Margin
-------- -------- ------ ---------- -------
SEGMENTS
Global Technology
Services* $32,322 $1,763 $34,086 $3,288 9.6%
% change 2.6% -16.1% 1.4% 25.6%
Global Business Services 15,969 1,373 17,341 1,706 9.8%
% change 0.4% 2.5% 0.6% 116.9%
Systems and Technology
Group 21,970 1,168 23,138 1,739 7.5%
% change 4.7% 4.5% 4.7% -7.6%
Software** 18,161 2,249 20,409 5,493 26.9%
% change 7.9% 13.6% 8.5% 14.9%
Global Financing 2,365 1,527 3,892 1,455 37.4%
% change -1.5% 1.4% -0.4% -8.1%
Personal Computing
Division 0 0 0 0 nm
% change nm nm nm nm
TOTAL REPORTABLE
SEGMENTS 90,787 8,080 98,867 13,682 13.8%
% change 0.3% 0.0% 0.3% 19.1%
Eliminations / Other 637 (8,080) (7,443) (365)
TOTAL IBM CONSOLIDATED $91,424 $0 $91,424 $13,317 14.6%
% change 0.3% 0.3% 8.9%
nm - not meaningful
TWELVE MONTHS 2005***
-----------------------------------------------
Pretax
Income
(Loss)
From
(Dollars in millions) --------- Revenue -------- Continuing Pretax
External Internal Total Operations Margin
-------- -------- ------ ---------- -------
SEGMENTS
Global Technology
Services $31,501 $2,102 $33,603 $2,619 7.8%
Global Business Services 15,906 1,339 17,245 786 4.6%
Systems and Technology
Group 20,981 1,118 22,099 1,883 8.5%
Software 16,830 1,979 18,809 4,779 25.4%
Global Financing 2,401 1,506 3,907 1,583 40.5%
Personal Computing
Division 2,876 33 2,909 (165) nm
TOTAL REPORTABLE
SEGMENTS 90,495 8,077 98,572 11,485 11.7%
Eliminations / Other 639 (8,077) (7,438) 741
TOTAL IBM CONSOLIDATED $91,134 $0 $91,134 $12,226 13.4%
nm - not meaningful
* Includes revenue for acquisitions managed by the Global Technology
Services segment but reported as Software revenue in the comparative
financial results exhibit.
** Excludes revenue from acquisitions reported as Software revenue in
the comparative financial results exhibit but managed by the Global
Technology Services segment.
*** The company filed a Form 8-K with the U.S. SEC on June 13, 2006 to
reclassify its financial statements and related footnotes to reflect
changes to its management system effective as of the first quarter
of 2006, including the separation of the Global Services segment into
two new reportable segments: Global Technology Services and Global
Business Services, as well as the reclassification of Enterprise
Investments to other reportable segments.
*T
