-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N47KAGOQoc3tFIkVPpi2LZbT7PZa4YIAR4umKreMDphpEg/712jQd2qBuc2EYDZH vGUecYIjxeY/D5oS/a2YPQ== 0001005477-01-500586.txt : 20010815 0001005477-01-500586.hdr.sgml : 20010815 ACCESSION NUMBER: 0001005477-01-500586 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL BUSINESS MACHINES CORP CENTRAL INDEX KEY: 0000051143 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER & OFFICE EQUIPMENT [3570] IRS NUMBER: 130871985 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-02360 FILM NUMBER: 1708486 BUSINESS ADDRESS: STREET 1: 1 NEW ORCHARD ROAD CITY: ARMONK STATE: NY ZIP: 10504- BUSINESS PHONE: 9144991900 MAIL ADDRESS: STREET 1: ONE NEW ORCHARD RD CITY: ARMONK STATE: NY ZIP: 10504 10-Q 1 from10-q.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10 - Q QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JUNE 30, 2001 1-2360 ------ (Commission file number) INTERNATIONAL BUSINESS MACHINES CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) New York 13-0871985 -------- ---------- (State of incorporation) (IRS employer identification number) Armonk, New York 10504 ---------------- ----- (Address of principal executive offices) (Zip Code) 914-499-1900 ------------ (Registrant's telephone number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section l3 or l5(d) of the Securities Exchange Act of 1934 during the preceding l2 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| The registrant has 1,736,659,530 shares of common stock outstanding at June 30, 2001. INDEX PAGE ---- PART I - FINANCIAL INFORMATION: ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statement of Earnings for the three and six months ended June 30, 2001 and 2000 ............................ 1 Consolidated Statement of Financial Position at June 30, 2001 and December 31, 2000 ............................ 3 Consolidated Statement of Cash Flows for the six months ended June 30, 2001 and 2000 ................................... 5 Notes to Consolidated Financial Statements .......................... 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION ............... 9 PART II - OTHER INFORMATION ............................................... 21 PART I - FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
(Dollars in millions except Three Months Ended Six Months Ended per share amounts) June 30, June 30, ---------------------- ----------------------- 2001 2000* 2001 2000* ------- -------- ------- -------- REVENUE: Global Services $ 8,742 $ 8,184 $17,213 $ 15,736 Hardware 8,652 9,151 17,199 16,863 Software 3,036 3,182 5,954 6,109 Global Financing 845 819 1,677 1,635 Enterprise Investments/Other 293 315 569 656 ------- -------- ------- -------- Total revenue 21,568 21,651 42,612 40,999 COST: Global Services 6,329 5,964 12,640 11,561 Hardware 6,061 6,654 12,030 12,247 Software 535 557 1,114 1,141 Global Financing 438 449 876 910 Enterprise Investments/Other 167 164 306 343 ------- -------- ------- -------- Total cost 13,530 13,788 26,966 26,202 ------- -------- ------- -------- GROSS PROFIT 8,038 7,863 15,646 14,797 EXPENSE: Selling, general and administrative 3,765 3,867 7,573 7,573 Research, development and engineering 1,279 1,269 2,482 2,441 Other income 34 (130) 70 (319) Interest expense 58 84 130 159 ------- -------- ------- -------- TOTAL EXPENSE 5,136 5,090 10,255 9,854 INCOME BEFORE INCOME TAXES 2,902 2,773 5,391 4,943 Provision for income taxes 857 832 1,596 1,483 ------- -------- ------- -------- NET INCOME 2,045 1,941 3,795 3,460 Preferred stock dividends 5 5 10 10 ------- -------- ------- -------- NET INCOME APPLICABLE TO COMMON SHAREHOLDERS $ 2,040 $ 1,936 $ 3,785 $ 3,450 ======= ======== ======= ========
* Reclassified to conform with 2001 presentation. (The accompanying notes are an integral part of the financial statements.) - 1 - INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF EARNINGS - (CONTINUED) (UNAUDITED)
Three Months Ended Six Months Ended June 30, June 30, ------------------------ ------------------------ 2001 2000 2001 2000 ---- ---- ---- ---- EARNINGS PER SHARE OF COMMON STOCK: Assuming dilution $ 1.15 $ 1.06 $ 2.13 $ 1.89 Basic $ 1.17 $ 1.10 $ 2.18 $ 1.95 AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: (MILLIONS) Assuming dilution 1,777.7 1,818.0 1,779.5 1,824.0 Basic 1,738.2 1,767.6 1,739.6 1,772.4 Cash dividends per common share $ 0.14 $ 0.13 $ 0.27 $ 0.25
(The accompanying notes are an integral part of the financial statements.) - 2 - INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION ASSETS
At June 30, (Dollars in millions) 2001 At December 31, (Unaudited) 2000 ------------- --------------- ASSETS Current assets: Cash and cash equivalents $ 3,691 $ 3,563 Marketable securities -- at fair value, which approximates market 89 159 Notes and accounts receivable -- trade, net of allowances 9,381 10,447 Short-term financing receivables 15,906 18,705 Other accounts receivable 1,318 1,574 Inventories, at lower of average cost or net realizable value Finished goods 1,520 1,446 Work in process and raw materials 3,338 3,319 -------- -------- Total inventories 4,858 4,765 Deferred taxes 2,414 2,701 Prepaid expenses and other current assets 2,917 1,966 -------- -------- Total current assets 40,574 43,880 Plant, rental machines and other property 38,338 38,455 Less: Accumulated depreciation 21,727 21,741 -------- -------- Plant, rental machines and other property -- net 16,611 16,714 Long-term financing receivables 12,290 13,308 Investments and sundry assets 14,465 14,447 -------- -------- TOTAL ASSETS $ 83,940 $ 88,349 ======== ========
(The accompanying notes are an integral part of the financial statements.) - 3 - INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION - (CONTINUED) LIABILITIES AND STOCKHOLDERS' EQUITY
At June 30, (Dollars in millions except 2001 At December 31, per share amounts) (Unaudited) 2000 ------------- --------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Taxes $ 3,916 $ 4,827 Accounts payable and accruals 17,497 21,374 Short-term debt 8,536 10,205 -------- -------- Total current liabilities 29,949 36,406 Long-term debt 18,770 18,371 Other liabilities 12,630 12,948 -------- -------- TOTAL LIABILITIES 61,349 67,725 STOCKHOLDERS' EQUITY: Preferred stock - par value $.01 per share 247 247 Shares authorized: 150,000,000 Shares issued and outstanding: 2001 and 2000 - 2,546,011 Common stock - par value $.20 per share 13,701 12,400 Shares authorized: 4,687,500,000 Shares issued: 2001 - 1,905,303,701 2000 - 1,893,940,595 Retained earnings 26,824 23,784 Treasury stock - at cost (17,896) (13,800) Shares: 2001 - 168,644,171 2000 - 131,041,411 Employee benefits trust -- (1,712) Shares: 2000 - 20,000,000 Accumulated gains and losses not affecting retained earnings (285) (295) -------- -------- TOTAL STOCKHOLDERS' EQUITY 22,591 20,624 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 83,940 $ 88,349 ======== ========
(The accompanying notes are an integral part of the financial statements.) - 4 - INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, (UNAUDITED)
(Dollars in millions) 2001 2000 ---- ---- CASH FLOW FROM OPERATING ACTIVITIES: Net income $ 3,795 $ 3,460 Adjustments to reconcile net income to cash provided from operating activities: Depreciation 2,144 2,246 Amortization of software 290 220 Loss/(gain) on disposition of fixed and other assets 57 (425) Changes in operating assets and liabilities (899) (3,016) ------- ------- NET CASH PROVIDED FROM OPERATING ACTIVITIES 5,387 2,485 ------- ------- CASH FLOW FROM INVESTING ACTIVITIES: Payments for plant, rental machines and other property, net of proceeds (2,420) (1,571) Investment in software (306) (262) Purchases of marketable securities and other investments (406) (453) Proceeds from marketable securities and other investments 458 880 ------- ------- NET CASH USED IN INVESTMENT ACTIVITIES (2,674) (1,406) ------- ------- CASH FLOW FROM FINANCING ACTIVITIES: Proceeds from new debt 2,102 4,796 Payments to settle debt (2,191) (4,048) Short-term (repayments)/borrowings less than 90 days -- net (323) 290 Common stock transactions -- net (1,650) (3,624) Cash dividends paid (482) (458) ------- ------- NET CASH USED IN FINANCING ACTIVITIES (2,544) (3,044) ------- ------- Effect of exchange rate changes on cash and cash equivalents (41) (91) ------- ------- Net change in cash and cash equivalents 128 (2,056) Cash and cash equivalents at January 1 3,563 5,043 ------- ------- CASH AND CASH EQUIVALENTS AT JUNE 30 $ 3,691 $ 2,987 ======= =======
(The accompanying notes are an integral part of the financial statements.) - 5 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. In the opinion of the management of International Business Machines Corporation (the company), all adjustments, which are of a normal recurring nature, necessary to a fair statement of the results for the unaudited three- and six-month periods have been made. 2. The following table summarizes Net income plus gains and losses not affecting retained earnings.
(Dollars in millions) Three Months Ended Six Months Ended June 30, June 30, --------------------- --------------------- 2001 2000 2001 2000 ---- ---- ---- ---- Net Income $ 2,045 $ 1,941 $ 3,795 $ 3,460 ------- ------- ------- ------- Gains and losses not affecting retained earnings (net of tax): Foreign currency translation adjustments (142) (184) (516) (293) Net unrealized gains/(losses) on marketable securities 47 (363) 46 (756) Net unrealized (losses)/gains on cash flow hedge derivatives (27) -- 480 -- ------- ------- ------- ------- Total (losses) and gains not affecting retained earnings (122) (547) 10 (1,049) ------- ------- ------- ------- Net income plus gains and losses not affecting retained earnings $ 1,923 $ 1,394 $ 3,805 $ 2,411 ======= ======= ======= =======
3. On January 1, 2001, the company adopted Statement of Financial Accounting Standards (SFAS) No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, as amended by SFAS No. 138, ACCOUNTING FOR CERTAIN DERIVATIVE INSTRUMENTS AND CERTAIN HEDGING ACTIVITIES. SFAS No. 133, as amended, establishes accounting and reporting standards for derivative instruments. Specifically, SFAS No. 133 requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and to measure those instruments at fair value. Additionally, the fair value adjustments will affect either stockholders' equity or net income depending on whether the derivative instrument qualifies as a hedge for accounting purposes and, if so, the nature of the hedging activity. As of January 1, 2001, the adoption of the new standard resulted in a cumulative effect net-of-tax increase of $219 million to Accumulated gains or losses not affecting retained earnings in the stockholders' equity section of the Consolidated Statement of Financial Position and a cumulative effect net-of-tax charge of $6 million included in Selling, general and administrative expense in the Consolidated Statement of Earnings. 4. In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, BUSINESS COMBINATIONS and SFAS No. 142, GOODWILL AND INTANGIBLE ASSETS. SFAS No. 141 requires the use of the purchase method of accounting for business combinations and prohibits the use of the pooling of interests method. The company has not qualified for using the pooling of interest method and therefore, this aspect of the new rules will not have an impact on the company's financial results. SFAS No. 141 also changes the definition of intangible assets acquired in a purchase business combination. As a result, the purchase price allocation of future - 6 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) business combinations may be different than the allocation that would have resulted under the old rules. Business combinations must be accounted for using SFAS No. 141 starting on July 1, 2001. SFAS No. 142 eliminates the amortization of goodwill, requires annual impairment testing of goodwill, introduces the concept of indefinite life intangible assets, and must be adopted on January 1, 2002. The new rules also prohibit companies from amortizing any goodwill associated with business combinations that close after June 30, 2001. These new requirements will impact future period net income equal to the amount of disallowed goodwill amortization offset by goodwill impairment charges, if any, and adjusted for any differences between the old and new rules for defining goodwill and intangible assets on future business combinations. An initial impairment test must be performed in 2002 as of January 1, 2002. Any resulting impairment charge from this initial test will be reported as a change in accounting principle, net of tax. The company is currently reviewing the provisions of these standards to determine any impact that might result from adoption. 5. Effective January 1, 2001, interest expense is presented in Cost of Global Financing in the Consolidated Statement of Earnings if the related external borrowings to support the Global Financing business were issued by either the company or its Global Financing units (see pages 19 and 20 for a discussion of Global Financing debt and interest expense). In prior periods, the caption only included interest related to direct external borrowings of Global Financing units. Prior period results have been reclassified to conform with the current period presentation. 6. The tables on pages 27 through 30 of this Form 10-Q reflect the results of the company's segments consistent with its management system used by the company's chief operating decision maker. These results are not necessarily a depiction that is in conformity with generally accepted accounting principles, e.g., employee retirement plan costs are developed using actuarial assumptions on a country-by-country basis and allocated to the segments on headcount. A different result could occur for any segment if actuarial assumptions unique to each segment were used. Performance measurement is based on income before income taxes (pre-tax income). These results are used, in part, by management, both in evaluating the performance of, and in allocating resources to, each of the segments. Effective in the first quarter of 2001, the segment results reflect changes the company made in the organization of its hardware business segments. These changes include the transfer of the xSeries (Intel-based) servers from the Personal Systems Group to the Enterprise Systems Group - server division, and the transfer of the printing systems division from the Technology Group to the newly formed Personal and Printing Systems Group, consisting of the realigned personal computer division, retail store solutions division and the printing systems division. Second-quarter and first-half 2000 results have been reclassified to conform with the 2001 presentation. 7. In 1997, the company created an employee benefits trust to which the company contributed 10 million shares of treasury stock. The company was authorized to instruct the trustee to sell such shares from time to time and to use the proceeds from such sales, and any dividends paid or earnings received on such stock, toward the partial satisfaction of the - 7 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) company's obligations under certain of its compensation and benefit plans. The shares held in trust were not considered outstanding for earnings per share purposes until they were committed to be released. The company did not commit any shares for release from the trust during its existence nor were any shares sold from the trust. The trust would have expired in 2007. Due to the fact that the company has not used the trust, nor is it expected to need the trust prior to its expiration, the company dissolved the trust, effective May 31, 2001, and all of the shares (20 million on a split-adjusted basis) were returned to the company as treasury shares. Dissolution of the trust will not affect the company's obligations related to any of its compensation and employee benefit plans or its ability to settle the obligations. In addition, the dissolution is not expected to have any impact on net income. At this time, the company plans to fully meet its obligations for the compensation and benefit plans in the same manner as it does today; using cash from operations. 8. The following table provides the liability balances for restructuring actions that the company took through 1993 and special actions in 1999:
Liability Liability as of as of 12/31/2000 Payments Other Adj.(c) 6/30/2001 ---------- -------- ------------- --------- Current: Workforce (a) $148 $ 84 $ 43 $107 Space (b) 91 43 40 88 ---- ---- ----- ---- Total $239 $127 $ 83 $195 Non-current: Workforce (a) $470 $ -- $ (91) $379 Space (b) 384 -- (75) 309 ---- ---- ----- ---- Total $854 $ -- $(166) $688
(a) Workforce accruals relate to terminated employees who are no longer working for the company, but who were granted annual payments to supplement their state pensions in certain countries. These contractually required payments will continue until the former employee dies. (b) Space accruals are for ongoing obligations to pay rent for vacant space that could not be sublet or space that was sublet at rates lower than the committed lease arrangement. The length of these obligations varies by lease with the longest extending through 2012. (c) Principally represents reclassification of non-current to current and currency translation adjustments. 9. Subsequent Events: On April 24, 2001, the company announced it would pay $1 billion in cash for the net assets of Informix Corporation's database software business. On July 2, 2001, the company completed the U.S. portion of the acquisition, as well as a number of non-U.S. countries. The Informix acquisition provides the company with a leading database system used in data warehousing, business intelligence and transaction-handling systems by more than 100,000 customers. The transaction is expected to be completed in the third quarter of 2001. The purchase method will be used to account for the acquisition. In 1993, the company issued 11.25 million shares of Series A 7-1/2% Preferred Stock, represented by 45 million Depositary Shares. On May 18, 2001, the company announced it would redeem all outstanding shares of its Series A 7-1/2% Preferred Stock, represented by the outstanding Depositary Shares (10,184,043 shares). The Depositary Shares represent ownership of one-fourth of a share of Preferred Stock. Depositary Shares were redeemed as of July 3, 2001, the redemption date, for cash at a redemption price of $25 plus accrued and unpaid dividends to - 8 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) the redemption date for each Depositary Share. Dividends on Preferred Stock, represented by the Depositary Shares ceased to accrue on the redemption date. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2001 Despite the extremely difficult industry conditions, as well as dismal results posted by many IT companies, the company achieved strong second-quarter and first-half results. The company had $21.6 billion in revenue, (up 5 percent at constant currency), improving profitability ($2 billion in net income) and diluted earnings per share of $1.15, up 8.4 percent over last year. The company recognizes that it is not immune to some of the problems that affected many of its competitors in the second quarter. The company experienced ongoing weakness in its personal computer and hard disk drive (HDD) businesses and it continued to be hurt by the negative effects of currency translation. The company expects that these factors will continue to work against it in the second half of this year. Additionally, the company is experiencing signs of slowing in its Microelectronics business as its original equipment manufacturer (OEM) customers reduce purchases. Beyond the near-term issues, it is important to understand that the company's performance results from strategic decisions the company made years ago and from its technological leadership in both hardware and software. Management believes that customers are increasingly placing value on solutions over products as their buying behavior foretells an industry driven by services, built on an infrastructure dominated by powerful, secure servers, with the application integration provided by middleware software. Management also believes that the company is uniquely positioned to lead in this new environment, regardless of economic conditions. RESULT OF OPERATIONS
(Dollars in millions) Three Months Ended Six Months Ended June 30, June 30, --------------------- --------------------- 2001 2000 2001 2000 ---- ---- ---- ---- Revenue $21,568 $21,651 $42,612 $40,999 Cost 13,530 13,788 26,966 26,202 ------- ------- ------- ------- Gross profit $ 8,038 $ 7,863 $15,646 $14,797 Gross profit margin 37.3% 36.3% 36.7% 36.1% Net income $ 2,045 $ 1,941 $ 3,795 $ 3,460 Earnings per share of common stock: Assuming dilution $ 1.15 $ 1.06 $ 2.13 $ 1.89 Basic $ 1.17 $ 1.10 $ 2.18 $ 1.95
- 9 - RESULTS OF OPERATIONS - (CONTINUED) The average number of common shares outstanding assuming dilution was lower by 40.3 million than the second quarter in 2001 and by 44.5 million than the first six months of 2001, primarily as a result of the company's share repurchase program. The average number of shares assuming dilution was 1,777.7 million in the second quarter of 2001 and 1,779.5 million for the first six months of 2001. There were 1,736.7 million shares outstanding at June 30, 2001. Revenue for the three months ended June 30, 2001 was essentially flat (up 5 percent in constant currency) versus the same period last year. Revenue from Global Services increased 6.8 percent in the quarter (13 percent at constant currency) which continued to benefit from contracts signed over the past year. Hardware revenue declined 5.5 percent (1 percent at constant currency) driven by lower personal computer and HDD revenue partially offset by higher revenue from Microelectronic products, zSeries mainframes and storage subsystem products. Software revenue decreased 4.6 percent (flat at constant currency) as middleware software and operating systems revenue declined year-over-year. Revenue from Global Financing increased 3.1 percent (7 percent at constant currency) and revenue from Enterprise Investments/Other declined 7.0 percent (flat at constant currency) year-over-year. In the Americas, the second-quarter revenue was $9.6 billion, a decrease of 1.4 percent (flat at constant currency) from the 2000 period. Revenue from Europe/Middle East/Africa was $5.8 billion, down 1.2 percent (up 7 percent at constant currency). Asia-Pacific revenue declined 1.6 percent (up 10 percent at constant currency) to $4.3 billion. OEM revenue was $1.9 billion, a 10.9 percent increase (12 percent in constant currency) compared with the second quarter of 2000. The company's overall gross profit margin improved to 37.3 percent in the 2001 second quarter compared with 36.3 percent in the 2000 second quarter. The increase in gross profit margin was primarily driven by improved margins in high-end servers, storage subsystems and Global Services. The company's second-quarter expense was $5.1 billion and the expense to revenue ratio was 23.8 percent compared with 23.5 percent in the year earlier period. Operating expense and interest expense-to-revenue improved, while other income declined due to writedowns of certain equity investments. The company continued to reduce its expense through its ongoing focus on productivity. The company's tax rate was 29.5 percent in the second quarter compared with 30.0 percent in the year-earlier period. - 10 - RESULTS OF OPERATIONS - (CONTINUED) GLOBAL SERVICES
(Dollars in millions) Three Months Ended Six Months Ended June 30, June 30, ------------------- --------------------- 2001 2000 2001 2000 ---- ---- ---- ---- Total revenue $8,742 $8,184 $17,213 $15,736 Total cost 6,329 5,964 12,640 11,561 ------ ------ ------- ------- Gross profit $2,413 $2,220 $ 4,573 $ 4,175 Gross profit margin 27.6% 27.1% 26.6% 26.5%
Global Services revenue including maintenance, increased 6.8 percent (13 percent at constant currency) and 9.4 percent (15 percent at constant currency), respectively, in the second quarter and first six months of 2001, when compared with the same periods of last year. Global Services revenue excluding maintenance, increased 8.6 percent (15 percent at constant currency) and 11.7 percent (18 percent at constant currency), respectively, for the second quarter and first half of 2001 versus the comparable periods of last year. Maintenance revenue declined 2.8 percent (up 3 percent at constant currency) in the second quarter of 2001 and declined 2.7 percent (up 2 percent at constant currency) for the first six months of 2001 when compared to the same periods of 2000. Strategic Outsourcing Services revenue increased in both the second quarter and first six months of 2001 versus last year with continued strong growth in the Asia/Pacific region. Business Innovation Services revenue grew in both the second quarter and first six months of 2001 versus the comparable period of 2000. Despite a slowdown in this market, particularly in the United States, customers continued to deploy e-business applications such as supply chain management and to perform e-business integration of their business processes and multiple applications. Integrated Technology Services revenue, excluding maintenance, increased in both the second quarter and the first half of 2001 versus the prior year periods, as demand for the company's expertise in e-business infrastructure services has continued and due to the growth in OEM alliance revenue. Total new contract signings for Global Services in the second quarter were approximately $16 billion and the backlog at June 30, 2001 is over $95 billion. Those signings included ten deals over $100 million, including three deals greater than $1 billion. Global Services gross profit dollars increased 8.7 percent and 9.5 percent, respectively, in the second quarter and first six months of 2001, when compared with year-ago periods. The Global Services gross profit margin increased 0.5 points and 0.1 points, respectively, from the prior year periods. The increase in both the gross profit dollars and gross profit margin was a result of improvements in Strategic Outsourcing Services margins and reduced costs across all geographies for maintenance offerings. These increases were partially offset by lower gross profit margins in Business Innovation Services and Integrated Technology Services due to the rebalancing of skills and resources to meet the new needs of e-business. - 11 - RESULTS OF OPERATIONS - (CONTINUED) HARDWARE
(Dollars in millions) Three Months Ended Six Months Ended June 30, June 30, ------------------- --------------------- 2001 2000 2001 2000 ---- ---- ---- ---- Total revenue $8,652 $9,151 $17,199 $16,863 Total cost 6,061 6,654 12,030 12,247 ------ ------ ------- ------- Gross profit $2,591 $2,497 $ 5,169 $ 4,616 Gross profit margin 29.9% 27.3% 30.1% 27.4%
Revenue from hardware decreased 5.5 percent (1 percent at constant currency) and increased 2.0 percent (6 percent at constant currency), respectively, in the second quarter and first six months of 2001 versus the same periods of 2000. Effective in the first quarter of 2001, the segment results reflect changes the company made in the organization of its hardware business segments. These changes are more fully discussed in Note 6 on page 7. All amounts disclosed herein for all years have been reclassified to conform with these changes. Enterprise Systems revenue increased for both the second quarter and first six months of 2001 versus the same periods of last year. The zSeries mainframe servers had good revenue growth for both the second quarter and first six months of 2001 when compared to the same periods of 2000. MIPS (millions of instructions per second) grew 43 percent in the second-quarter 2001 versus the second quarter of 2000. Storage products had strong revenue growth for both the second quarter and first six months of 2001 versus the comparable periods in 2000. These increases were driven by strong disk subsystem (primarily Shark) and tape subsystem products. The UNIX-based pSeries and the PC-based xSeries revenue declined in the second quarter of 2001 and showed growth for the first six months of 2001 versus the same periods last year. The iSeries revenue declined for both the second quarter and first six months of 2001 versus the same periods last year. Technology revenue increased for the second quarter and the six months of 2001 when compared with year-ago periods. The increases were driven by the company's advanced technologies being utilized in three fast growing areas; networking, pervasive and enterprise IT. During the second quarter the company began to experience a slowdown in its Microelectronics business as demand for less complex products has been effected by the industry slowdown. Further, these increases in Technology revenue were partially offset by lower HDD revenue. The company's ability to sell HDDs is highly dependent on the personal computer industry. The uncertainty in this industry is effecting both the company's HDD and personal computer results. There is extreme price pressure, excess inventory and manufacturing capacity in this industry. Personal and Printing Systems revenue declined for the second quarter and first six months of 2001 versus the same periods in 2000 due to lower revenue from personal computers, retail - 12 - RESULTS OF OPERATIONS - (CONTINUED) stores solutions and printing system products. The personal computer revenue decline was primarily driven by price erosion across all product lines. The company continues to focus on reducing cost and expense in the personal computer business as well as achieving the maximum utilization through the company's direct fulfillment channel. In the second quarter of 2001, 40 percent of the company's personal computer sales were fulfilled through the direct channel versus 24 percent in the second quarter of 2000. Hardware sales gross profit dollars for the second quarter and first six months of 2001 increased 3.8 percent and 12.0 percent, respectively, from comparable periods in 2000. The hardware gross profit margin increased 2.6 points and 2.7 points, respectively, from the prior year periods. These increases were primarily due to improved gross profit margins for pSeries, iSeries and zSeries servers, as well as disk subsystem products and continued benefit from higher-margin custom logic sales in Technology. The increases were partially offset by lower gross profit margins associated with HDDs, printing system and retail stores solutions products. SOFTWARE
(Dollars in millions) Three Months Ended Six Months Ended June 30, June 30, ------------------- --------------------- 2001 2000 2001 2000 ---- ---- ---- ---- Total revenue $3,036 $3,182 $5,954 $6,109 Total cost 535 557 1,114 1,141 ------ ------ ------ ------ Gross profit $2,501 $2,625 $4,840 $4,968 Gross profit margin 82.4% 82.5% 81.3% 81.3%
Revenue from software for the second quarter and first six months of 2001 decreased 4.6 percent (flat at constant currency) and 2.5 percent (up 2 percent at constant currency), respectively, over comparable periods in 2000. The company's middleware products (which comprise data management, transaction processing, Tivoli systems management, and Lotus Notes messaging and collaboration across both IBM and non-IBM platforms) revenue declined 4 percent (flat at constant currency) and 2 percent (up 3 percent at constant currency), respectively, for the second quarter and first six months of 2001 versus comparable periods of 2000. While the company felt the effect of the general slowdown in the industry in the second quarter, revenue from WebSphere and DB2 database offerings experienced strong growth for the second quarter and first half of 2001 versus the same periods last year. These increases were partially offset by lower revenue from Tivoli products as a result of continuing transitions in this unit's product line. Operating-systems software revenue declined 4 percent (up 1 percent at constant currency) and 3 percent (up 1 percent at constant currency) for the second quarter and first six months of 2001, when compared with year-ago periods. The declines were primarily associated with lower revenue from server products. - 13 - RESULTS OF OPERATIONS - (CONTINUED) The company made progress in the second quarter with alliance partners, signing 13 new Independent Software Vendors (ISV) alliances. As of June 30, 2001, the company has 68 of these strategic partnerships, all of whom have committed to lead with IBM middleware, eServers and services as the company works with them to help the company's customers build the next-generation applications. Software gross profit dollars for the second quarter and first six months of 2001 declined 4.7 percent and 2.6 percent, respectively, versus the same periods in 2000. The gross profit margin declined 0.1 points and was flat, respectively, for the second quarter and first six months of 2001, versus the same periods of 2000. The declines in gross profit dollars and gross profit margin were primarily driven by lower software revenue in the second quarter and first six months of 2001 versus the same periods in 2000. GLOBAL FINANCING
(Dollars in millions) Three Months Ended Six Months Ended June 30, June 30, ------------------- --------------------- 2001 2000 2001 2000 ---- ---- ---- ---- Total revenue $845 $819 $1,677 $1,635 Total cost 438 449 876 910 ---- ---- ------ ------ Gross profit $407 $370 $ 801 $ 725 Gross profit margin 48.2% 45.2% 47.7% 44.3%
Global Financing revenue increased 3.1 percent (7 percent at constant currency) and 2.6 percent (6 percent at constant currency), respectively, for the second quarter and first six months of 2001, when compared with the same periods of 2000. The increases in revenue were primarily driven by growth in used equipment sales, commercial and customer financing. Global Financing gross profit dollars increased 10.0 percent and 10.5 percent, respectively, for the second quarter and first six months of 2001, versus the same periods of 2000. The gross profit margins improved 3.0 points and 3.4 points, respectively, for the second quarter and first six months of 2001, versus the same periods of 2000. The increases in gross profit dollars and gross profit margins were primarily driven by improved margins for used equipment sales and higher financing margins due to lower interest rates. See Note 5 on page 7 for additional information regarding Cost of Global Financing reclassification effective January 1, 2001. All amounts disclosed herein for all years presented have been reclassified to conform with these changes. - 14 - RESULTS OF OPERATIONS - (CONTINUED) ENTERPRISE INVESTMENTS/OTHER
(Dollars in millions) Three Months Ended Six Months Ended June 30, June 30, ------------------- --------------------- 2001 2000 2001 2000 ---- ---- ---- ---- Total revenue $293 $315 $569 $656 Total cost 167 164 306 343 ---- ---- ---- ---- Gross profit $126 $151 $263 $313 Gross profit margin 43.3% 47.9% 46.3% 47.7%
Revenue from Enterprise Investments/Other decreased 7.0 percent (flat at constant currency) and 13.4 percent (7 percent at constant currency), respectively, for the second quarter and first six months of 2001, versus comparable periods in 2000. These declines were primarily due to lower CATIA related product revenue versus the same periods in 2000. The Enterprise Investments/Other gross profit dollars decreased 16.6 percent and 16.0 percent, respectively, in the second quarter and first six months of 2001, versus the same periods of 2000. The gross profit margins declined 4.6 points and 1.4 points, respectively, for the second quarter and first six months of 2001 versus the year ago periods. The declines in gross profit dollars and gross profit margin were primarily due to lower CATIA related product revenue in the second quarter and first half of 2001 versus last year periods. EXPENSES
(Dollars in millions) Three Months Ended Six Months Ended June 30, June 30, ----------------------- ----------------------- 2001 2000 2001 2000 ---- ---- ---- ---- Selling, general and administrative $ 3,765 $ 3,867 $ 7,573 $ 7,573 Percentage of revenue 17.5% 17.9% 17.8% 18.5% Research, development and engineering $ 1,279 $ 1,269 $ 2,482 $ 2,441 Percentage of revenue 5.9% 5.9% 5.8% 6.0%
Selling, general and administrative (SG&A) expense declined 2.6 percent (up 1 percent at constant currency) for the second quarter of 2001 compared to the second quarter of 2000 and was flat (up 3 percent at constant currency) for the first six months of 2001 versus the same period in 2000. SG&A expense benefited from the effects of currency and lower goodwill amortization for the second quarter and first six months of 2001. This benefit was offset by lower benefits from licensing of intellectual property and increased compensation-related spending. The company continues to reduce its expense through increased use of e-procurement, on-line learning and other actions related to the company's ongoing e-business transformation. Research, development and engineering expense increased 0.8 percent and 1.7 percent, respectively, for the second quarter and first six months of 2001, when compared with the same - 15 - RESULTS OF OPERATIONS - (CONTINUED) periods of 2000. Other income declined 125.9 percent and 121.9 percent, respectively, for the second quarter and first six months of 2001 when compared to the same periods of 2000. The declines were primarily due to the write-downs ($106 million in the second quarter and $222 million in the first six months) of certain equity investments for other-than-temporary market declines. In addition, lower realized gains from sales of available-for-sale securities in 2001 contributed to the declines in Other income. Interest on total borrowings of the company and its subsidiaries, which includes interest expense and interest costs associated with Global Financing, was $317 million and $685 million for the second quarter and first six months of 2001, respectively. Of these amounts, the company capitalized $7 million for the second quarter and $14 million for the first six months of 2001. See pages 19 and 20 for a discussion regarding the classification of interest expense in the Consolidated Statement of Earnings. Included in the company's cost and expense was approximately $146 million of benefit for retirement-related plans, including pension plans and nonpension postretirement benefit plans, for the second quarter of 2001. The comparable amount for the second quarter of 2000 was approximately $113 million. The comparable amounts for the first six months of 2001 and 2000 were $230 million and $171 million, respectively. The company realized cost and expense reductions of approximately $365 million due to the funded status of its pension plans for the second quarter of 2001. The comparable amount for the second quarter of 2000 was approximately $351 million. The comparable amounts for the first six months of 2001 and 2000 were $704 million and $606 million, respectively. The second quarter of 2001 cost and expense reduction is net of approximately $25 million associated with the improvement in pension benefits for certain retirees participating in the U.S. Plan, effective January 1, 2001. The first six months of 2001 cost and expense reduction is net of approximately $50 million associated with the improvement in pension benefits for certain retirees participating in the U.S. Plan, effective January 1, 2001. Future effects of retirement-related plans on the operating results of the company depend on economic conditions, employee demographics, mortality rates and investment performance. The effective tax rate for the quarter ended June 30, 2001, was 29.5 percent versus 30.0 percent for the same period in 2000. The effective tax rate for the first six months of 2001 was 29.6 percent versus 30.0 percent for the same period in 2000. The declines in the tax rates were primarily the result of the source of earnings and corresponding weighting of tax rates on a country-by-country basis. FINANCIAL CONDITION During the first half of 2001, the company's continued strong financial performance enabled it to make significant investments to fund its future growth and increase shareholder value. Investments included expenditures of $2,748 million for Research, development and engineering, $2,949 million for Plant, rental machines and other property and $2,536 million for the - 16 - FINANCIAL CONDITION - (CONTINUED) repurchase of the company's common shares. The company had $3,780 million in Cash and cash equivalents and Marketable securities at June 30, 2001. CASH FLOW
(Dollars in millions) Six Months Ended June 30, --------------------- 2001 2000 ---- ---- Net cash provided from (used in): Operating activities $ 5,387 $ 2,485 Investing activities (2,674) (1,406) Financing activities (2,544) (3,044) Effect of exchange rate changes on cash and cash equivalents (41) (91) ------- ------- Net change in cash and cash equivalents $ 128 $(2,056) ======= =======
Cash flows from operating activities in the first half of 2001 increased $2,902 million from the comparable 2000 period. This primarily resulted from the company's improvement in net income, as well as the collection of accounts receivable which reflected strong year-end 2000 business volumes, offset by a decline in cash flows for accounts payable and other accruals. Cash flows used in investing activities increased $1,268 million from the comparable 2000 period. Payments for plant, rental machines and other property net of proceeds drove the increase from the comparable 2000 period, primarily for investments in the company's Global Services business and in manufacturing capacity for microelectronics and storage products. Proceeds from marketable securities and other investments declined from the 2000 period. Cash flows used in financing activities in the first half of 2001 decreased $500 million from the comparable 2000 period due primarily to decreases in stock repurchases partially offset by net cash flows from debt financing. WORKING CAPITAL
(Dollars in millions) At June 30, At December 31, 2001 2000 ----------- --------------- Current assets $40,574 $43,880 Current liabilities 29,949 36,406 ------- ------- Working capital $10,625 $ 7,474 Current ratio 1.35:1 1.21:1
Current assets decreased $3,306 million from year-end 2000 primarily due to decreases of $4,121 million in Accounts receivable ($2,799 million in Short-term financing receivables, $1,066 million in Notes and accounts receivable and $256 million in Other accounts receivable) and $287 million in deferred taxes partially offset by an increases of $951 million in Prepaid - 17 - FINANCIAL CONDITION - (CONTINUED) expenses and other current assets, $93 million in Inventories and $58 million in Cash and cash equivalents and Marketable securities. The decline in Accounts Receivable was attributable to the collection of typically higher year-end accounts receivable balances. The increase in Prepaid expenses and other current assets primarily resulted from the recognition of derivative instrument assets relative to the company's January 1, 2001 adoption of SFAS No. 133. Inventories increased primarily within the Technology Group, Enterprise Systems Group and storage systems offset by a decline in Personal and Printing Systems Group inventories. Current liabilities decreased $6,457 million from year-end 2000 with declines of $3,877 million in Accounts payable and accruals, and $911 million in Taxes payable (resulting primarily from declines in these balances from typically higher year-end levels), and $1,669 million in Short-term debt. INVESTMENTS During the first half of 2001, the company invested $2,949 million in Plant, rental machines and other property, an increase of $577 million from the comparable 2000 period. The company's investments were in its services business, primarily in the management of customers' information technology, as well as in manufacturing capacity for HDDs and microelectronics. In addition to software development expense included in Research, development and engineering expense, the company capitalized $306 million of software costs during the first half of 2001, an increase of $44 million from the comparable period in 2000. Amortization of capitalized software costs was $290 million during the first half of 2001, an increase of $70 million from the comparable 2000 period. Investments and sundry assets were $14,465 million at June 30, 2001, an increase of $18 million from year-end 2000, resulting primarily from an increase in prepaid pension assets, partially offset by declines in alliance investments including the write-down of certain equity investments for other-than-temporary market declines. On April 24, 2001, the Board of Directors increased its authorized amount of IBM common shares that the company may repurchase in the open market by an additional $3.5 billion of IBM common shares. The company's total remaining authorized amount as of June 30, 2001 is $3,784 million of IBM common shares. - 18 - FINANCIAL CONDITION - (CONTINUED) DEBT AND EQUITY GLOBAL FINANCING
(Dollars in millions) At June 30, At December 31, 2001 2000 ----------- --------------- Assets* $36,368 $40,822 Debt ** 26,109 27,514 Equity 3,880 4,142 Debt/Equity 6.7x 6.6x
* Global Financing assets include cash, financing receivables, intercompany assets, rental machine fixed assets and other assets. ** Global Financing debt includes debt of the company and of Global Financing units that support the Global Financing business. The Global Financing segment is a financial services business and is, therefore, more debt dependent than the company's other businesses. At June 30, 2001, Global Financing debt to equity ratio increased to 6.7x, which is within management's acceptable target range. NON-GLOBAL FINANCING Debt* $ 1,197 $ 1,062 Debt/Capitalization 6.0% 6.1% EBITDA/Interest Expense** 26x 24x
* Non-global financing debt is the company's total external debt less the Global Financing debt described in the Global Financing table above. ** EBITDA is earnings before interest and taxes, plus depreciation and amortization, adjusted for minimum rental commitments. The interest expense used in the denominator represents the company's total interest expense less the interest expense associated with the Global Financing debt in the table above. The increase in non-global financing debt in the first half of 2001 is based on seasonal patterns of the company's cash flows. The level of non-global financing debt is generally low at year-end periods due to strong fourth quarter cash flows. Non-global financing debt increases in the first half of the year due to weaker cash flows and increased requirements for cash in the first half period. Global Financing provides financing predominately for the company's external customers but also provides financing for the company including the funding to support the Global Services business' long-term customer services contracts. All of these financing arrangements are at arms-length rates based upon market conditions. The company manages and measures the Global Financing business as if it approximates a stand-alone business that includes both the external financing and related company financing described above. Accordingly, the Global Financing debt above and Global Financing Cost of financing below support both of these Global Financing activities. - 19 - FINANCIAL CONDITION - (CONTINUED) All intercompany transactions are eliminated in the Consolidated Statement of Earnings and therefore, the financing revenue associated with the financing provided by Global Financing to the company is eliminated in consolidation. Accordingly, the interest expense from the company's external borrowings that supports such financing revenue is classified in the Interest expense caption of the Consolidated Statement of Earnings as opposed to the Cost of financing caption. The reconciliation of these amounts for three-and six-month periods ended June 30, 2001 is as follows: (Dollars in millions)
Global Non-Global Consolidated Financing Financing Eliminations Results --------- ---------- ------------ ------------ Three Months Cost of financing $ 296 $ -- $ (44) $ 252 Interest expense -- 14 44 58 Six Months Cost of financing $ 639 $ -- $ (98) $ 541 Interest expense -- 32 98 130
Stockholders' equity increased $1,967 million from December 31, 2000, primarily due to the increase in the company's retained earnings partially offset by the company's ongoing stock repurchase program. LIQUIDITY Effective May 31, 2001, the company renewed its committed global credit facility. The former $10 billion facility was due to mature in February 2002. The amount of the new facility was reduced from $10 billion to $8 billion. In addition, a new $4 billion, 364-day committed global credit facility was established. As of June 30, 2001, $7,556 million of the $8 billion facility and all of the $4 billion facility remained unused and available for use. FORWARD LOOKING AND CAUTIONARY STATEMENTS Except for the historical information and discussions contained herein, statements contained in this Form 10-Q 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; currency and customer financing risks; 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; legal, political and economic changes and other risks, uncertainties and factors discussed elsewhere in this Form 10-Q, in the company's other filings with the Securities and Exchange Commission or in materials incorporated therein by reference. - 20 - PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The International Business Machines Corporation held its Annual Meeting of Stockholders on April 24, 2001. For more information on the following proposals, see the company's proxy statement dated March 12, 2001, the relevant portions of which are incorporated herein by reference. (1) The stockholders elected each of the fifteen nominees to the Board of Directors for a one-year term:
DIRECTOR FOR WITHHELD ----------------- ------------- -------- C. Black 1,421,831,804 19,003,383 K. I. Chenault 1,419,641,674 21,193,513 J. Dormann 1,422,083,639 18,751,548 L. V. Gerstner, Jr 1,420,061,864 20,773,323 N. O. Keohane 1,421,199,408 19,635,779 C. F. Knight 1,335,167,484 105,667,703 M. Makihara 1,421,132,068 19,703,119 L. A. Noto 1,421,641,981 19,193,206 S. J. Palmisano 1,422,026,752 18,808,435 J. B. Slaughter 1,420,870,825 19,964,362 S. Taurel 1,420,342,238 20,492,949 J. M. Thompson 1,422,026,453 18,808,734 A. Trotman 1,421,422,509 19,412,678 L. C. van Wachem 1,419,944,913 20,890,274 C. M. Vest 1,420,016,783 20,818,404
(2) The stockholders ratified the appointment of PricewaterhouseCoopers LLP as independent accountants of the company: For 1,402,139,439 Against 28,279,400 Abstain 10,416,348 ------------- Total 1,440,835,187
(3) The stockholders defeated a shareholder proposal on Board Service: For 57,588,526 Against 1,043,466,665 Abstain 34,039,201 Broker No Vote 305,740,795 ------------- Total 1,440,835,187
- 21 - ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - (CONTINUED) (4) The stockholders defeated a shareholder proposal on Pension and Retirement Medical: For 159,172,103 Against 925,456,501 Abstain 50,465,788 Broker No Vote 305,740,795 ------------- Total 1,440,835,187
ITEM 6 (a). EXHIBITS EXHIBIT NUMBER 11 Statement re: computation of per share earnings. 12 Statement re: computation of ratios. 22 The company's proxy statement dated March 12, 2001, containing the full text of the proposals referred to in Item 4, which was previously filed electronically, is hereby incorporated by reference. ITEM 6 (b). REPORTS ON FORM 8-K The company filed Form 8-K on April 18, 2001, with respect to the company's financial results for the period ended March 31, 2001, and included the unaudited Consolidated Statement of Earnings, Consolidated Statement of Financial Position and Segment Data for the period ended March 31, 2001. In addition, IBM's Chief Financial Officer, John R. Joyce's first-quarter earnings presentation to security analysts on Wednesday, April 18, 2001, was filed as Attachment II of the Form 8-K. 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 thereunto duly authorized. International Business Machines Corporation ------------------------------------------- (Registrant) Date: August 14, 2001 - --------------------- By: /s/ Mark Loughridge ---------------------------------- Mark Loughridge Vice President and Controller - 22 - EX-11 3 ex-11.txt COMPUTATION OF BASIC AND DILUTED EARNINGS EXHIBIT 11 COMPUTATION OF BASIC AND DILUTED EARNINGS PER SHARE (UNAUDITED)
For Three Months Ended --------------------------------- June 30, 2001 June 30, 2000 ------------- ------------- Number of shares on which basic earnings per share is calculated: Average outstanding during period 1,738,248,472 1,767,618,661 Add - Incremental shares under stock compensation plans 39,485,313 47,477,949 Add - Incremental shares associated with put options 14,305 -- Add - Incremental shares associated with contingently issuable shares -- 2,945,635 -------------- -------------- Number of shares on which diluted earnings per share is calculated 1,777,748,090 1,818,042,245 ============== ============== Net income applicable to common shareholders (millions) $ 2,040 $ 1,936 Less - net income applicable to contingently issuable shares (millions) -- 9 -------------- -------------- Net income on which diluted earnings per share is calculated (millions) $ 2,040 $ 1,927 ============== ============== Earnings per share of common stock: Assuming dilution $ 1.15 $ 1.06 Basic $ 1.17 $ 1.10
Stock options to purchase 48,138,247 shares and 25,390,405 shares were outstanding as of June 30, 2001 and 2000, respectively, but were not included in the computation of diluted earnings per share because the options' exercise price during the respective periods was greater than the average market price of the common shares and, therefore, the effect would have been antidilutive. In addition, 2,550,288 restricted stock units as of June 30, 2001 relating to the company's Long-Term Performance Plan were not included in the computation of diluted earnings per share as their effect would have been antidilutive. Net income applicable to common shareholders excludes preferred stock dividends of $5 million for the three months ended June 30, 2001 and 2000. - 23 - COMPUTATION OF BASIC AND DILUTED EARNINGS PER SHARE - (CONTINUED) (UNAUDITED)
For Six Months Ended ------------------------------------ June 30, 2001 June 30, 2000 --------------- -------------- Number of shares on which basic earnings per share is calculated: Average outstanding during period 1,739,584,833 1,772,402,745 Add - Incremental shares under stock compensation plans 38,665,209 49,964,337 Add - Incremental shares associated with put options 11,549 -- Add - Incremental shares associated with contingently issuable shares 1,261,473 1,659,239 --------------- -------------- Number of shares on which diluted earnings per share is calculated 1,779,523,064 1,824,026,321 =============== ============== Net income applicable to common shareholders (millions) $ 3,785 $ 3,450 Less - net income applicable to contingently issuable shares (millions) (2) 9 --------------- -------------- Net income on which diluted earnings per share is calculated (millions) $ 3,787 $ 3,441 =============== ============== Earnings per share of common stock: Assuming dilution $ 2.13 $ 1.89 Basic $ 2.18 $ 1.95
Stock options to purchase 61,834,121 shares and 24,542,800 shares were outstanding as of June 30, 2001 and 2000, respectively, but were not included in the computation of diluted earnings per share because the options' exercise price during the respective periods was greater than the average market price of the common shares, and therefore, the effect would have been antidilutive. Net income applicable to common shareholders excludes preferred stock dividends of $10 million for the six months ended June 30, 2001 and 2000. - 24 - EX-12 4 ex-12.txt STATEMENT RE: COMPUTATION OF RATIOS EXHIBIT 12 COMPUTATION OF RATIO OF NET INCOME TO FIXED CHARGES AND NET INCOME TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (UNAUDITED) (Dollars in millions)
For Six Months Ended -------------------------------- June 30, 2001 June 30, 2000 ------------- ------------- Income before income taxes (1) $ 5,418 $ 4,926 Add: Fixed charges, excluding capitalized interest 899 905 --------- --------- Income as adjusted before income taxes $ 6,317 $ 5,831 ========= ========= Fixed charges: Interest expense $ 672 $ 685 Capitalized interest 14 15 Portion of rental expense representative of interest 227 220 --------- --------- Total fixed charges $ 913 $ 920 ========= ========= Preferred stock dividends (2) 14 14 --------- --------- Combined fixed charges and preferred stock dividends $ 927 $ 934 ========= ========= Ratio of net income to fixed charges 6.92 6.33 Ratio of net income to combined fixed charges and preferred stock dividends 6.81 6.24
(1) Income before income taxes excludes the company's share in the income and losses of less-than-fifty percent-owned affiliates. (2) Included in the ratio computation are preferred stock dividends of $10 million for the first six months of 2001 and 2000, or $14 million, respectively, representing the pre-tax income that would be required to cover those dividend requirements based on the company's effective tax rate for the six months ended June 30, 2001 and 2000. - 25 - (THIS PAGE INTENTIONALLY LEFT BLANK) - 26 - SEGMENT INFORMATION (UNAUDITED)
Hardware Segments ----------------------------------- Personal and Global Printing Enterprise Global Enterprise Total (Dollars in Millions) Services Technology Systems Systems Software Financing Investments Segments - --------------------------------------------------------------------------------------------------------------------------------- THREE MONTHS ENDED JUNE 30, 2001: External revenue $8,742 $ 2,120 $ 3,067 $3,477 $ 3,036 $ 838 $ 287 $ 21,567 Internal revenue 650 618 14 205 236 217 -- 1,940 ------ ------- ------- ------ ------- ------- ----- -------- Total revenue $9,392 $ 2,738 $ 3,081 $3,682 $ 3,272 $ 1,055 $ 287 $ 23,507 ====== ======= ======= ====== ======= ======= ===== ======== Pre-tax income (loss) $1,307 $ 46 $ (8) $ 526 $ 711 $ 291 $ (27) $ 2,846 ====== ======= ======= ====== ======= ======= ===== ======== Revenue year-to-year change 6.9% 0.2% (17.6)% 3.3% Pre-tax income year-to-year change 22.3% (77.6)% (300.0)% 30.8% (3.5)% (3.5)% (10.9)% (0.5)% Pre-tax income margin 13.9% 1.7% (0.3)% 14.3% (3.4)% (4.9)% 75.9% 9.3% 21.7% 27.6% (9.4)% 12.1% THREE MONTHS ENDED JUNE 30, 2000*: External revenue $8,184 $ 2,023 $ 3,729 $3,392 $ 3,182 $ 829 $ 321 $ 21,660 Internal revenue 600 709 12 172 209 264 1 1,967 ------ ------- ------- ------ ------- ------- ----- -------- Total revenue $8,784 $ 2,732 $ 3,741 $3,564 $ 3,391 $ 1,093 $ 322 $ 23,627 ====== ======= ======= ====== ======= ======= ===== ======== Pre-tax income (loss) $1,069 $ 205 $ (2) $ 402 $ 736 $ 306 $(112) $ 2,604 ====== ======= ======= ====== ======= ======= ===== ======== Pre-tax income margin 12.2% 7.5% (0.1)% 11.3% 21.7% 28.0% (34.8)% 11.0%
* Reclassified to conform with 2001 presentation. RECONCILIATIONS TO IBM AS REPORTED:
Three Months Ended Three Months Ended (Dollars in Millions) June 30, 2001 June 30, 2000 ------------- ------------- Revenue: Total reportable segments $ 23,507 $ 23,627 Eliminations/other (1,939) (1,976) -------- -------- Total IBM Consolidated $ 21,568 $ 21,651 ======== ======== Pretax income: Total reportable segments $ 2,846 $ 2,604 Eliminations/other 56 169 -------- -------- Total IBM Consolidated $ 2,902 $ 2 ,773 ======== ========
- 27 - & - 28 - SEGMENT INFORMATION (UNAUDITED)
Hardware Segments ---------------------------------- Personal and Global Printing Enterprise (Dollars in Millions) Services Technology Systems Systems Software Financing Investments Segments - ---------------------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED JUNE 30, 2001: External revenue $17,213 $ 4,437 $ 6,243 $6,613 $ 5,954 $ 1,672 $ 540 $42,672 Internal revenue 1,239 1,167 32 372 450 443 1 3,704 ------- ------- ------- ------ ------- ------- ----- ------- Total revenue $18,452 $ 5,604 $ 6,275 $6,985 $ 6,404 $ 2,115 $ 541 $46,376 ======= ======= ======= ====== ======= ======= ===== ======= Pre-tax income (loss) $ 2,375 $ 177 $ (66) $ 917 $ 1,297 $ 564 $(167) $ 5,097 ======= ======= ======= ====== ======= ======= ===== ======= Revenue year-to-year change 9.0% 10.4% (8.7)% 4.7% (1.4)% (0.6)% (18.5)% 3.4% Pre-tax income year-to-year change 14.9% (14.5)% 28.3% 18.9% (1.5)% (5.1)% (7.7)% 8.2% Pre-tax income margin 12.9% 3.2% (1.1)% 13.1% 20.3% 26.7% (30.9)% 11.0% SIX MONTHS ENDED JUNE 30, 2000*: External revenue $15,736 $ 3,576 $ 6,849 $6,336 $ 6,109 $ 1,657 $ 662 $40,925 Internal revenue 1,195 1,500 22 337 384 470 2 3,910 ------- ------- ------- ------ ------- ------- ----- ------- Total revenue $16,931 $ 5,076 $ 6,871 $6,673 $ 6,493 $ 2,127 $ 664 $44,835 ======= ======= ======= ====== ======= ======= ===== ======= Pre-tax income (loss) $ 2,067 $ 207 $ (92) $ 771 $ 1,317 $ 594 $(155) $ 4,709 ======= ======= ======= ====== ======= ======= ===== ======= Pre-tax income margin 12.2% 4.1% (1.3)% 11.6% 20.3% 27.9% (23.3)% 10.5%
* Reclassified to conform with 2001 presentation. RECONCILIATIONS TO IBM AS REPORTED:
Six Months Ended Six Months Ended (Dollars in Millions) June 30, 2001 June 30, 2000 ---------------- ---------------- Revenue: Total reportable segments $ 46,376 $ 44,835 Eliminations/other (3,764) (3,836) -------- -------- Total IBM Consolidated $ 42,612 $ 40,999 ======== ======== Pretax income: Total reportable segments $ 5 ,097 $ 4,709 Eliminations/other 294 234 -------- -------- Total IBM Consolidated $ 5,391 $ 4,943 ======== ========
- 29 - & - 30 - EXHIBITS OMITTED FROM THIS COPY IBM's Definitive Proxy Statement dated March 12, 2001. Copies of these exhibits may be obtained without charge from EquiServe, First Chicago Trust Division, Suite 4688, P.O. Box 2530, Jersey City, New Jersey 07303-2530 - 31 - -----END PRIVACY-ENHANCED MESSAGE-----