Louis V. Gerstner, Jr., IBM chairman and chief executive officer, said: "We showed good growth in the fourth quarter despite a difficult year-over-year comparison, continued weakness in Europe and a greater-than-expected currency impact. I'm especially pleased by the ongoing strong growth in our services business, by our improved software results, led by our Lotus and Tivoli units, and by the continued turnaround in our Personal Computer Company. Our storage business also turned in an outstanding quarter, and demand for our System/390 servers remained strong.
"For the full year, we grew at 9 percent in constant currency -- our highest rate of constant currency growth since 1985. We continued to make substantial progress across our product line, from our new Aptiva 'S' home computer through faster, more efficient System/390 servers. We announced -- and delivered -- dozens of networking and electronic business applications. In addition, we completed the year with more than $8 billion in cash, after about $6 billion in capital expenditures, $1 billion in acquisitions and nearly $6 billion in common share repurchases.
"Although we still face many challenges, IBM is a much different company than it was only a few years ago. Our portfolio of businesses is now better balanced to reflect the changing requirements of our industry. For example, services made up just 13 percent of our revenues in 1993. By year-end 1996, services represented 21 percent of revenues. Also, we refocused and reorganized our sales team around customers -- around industries -- so that we can provide industry-specific products, services and solutions to common customer needs. It is clear now that this was the right strategy."
Fourth-quarter revenues increased in North America, Asia-Pacific and Latin America, while European results were flat. Specifically, revenues from North America increased 11 percent year over year to $9.6 billion. Asia-Pacific revenues grew 6 percent to $4.3 billion. Revenues from Latin America were $1.1 billion, an increase of 4 percent. Revenues from the company's Europe, Middle East and Africa unit were $8.1 billion, flat year over year.
Currency had an approximately 3 percentage point negative impact on the company's revenue results in the fourth quarter. This compares with an approximately 2 percentage point positive revenue effect in the fourth quarter of 1995. At constant currency in the fourth quarter of 1996, European revenues grew 3 percent and Asia-Pacific revenues increased 14 percent.
Hardware sales revenues were $11.7 billion, an increase of 2 percent compared with the fourth quarter of 1995. Personal computer revenues grew year over year in both commercial and consumer categories. AS/400, storage product and networking hardware revenues also increased. System/390 and IBM Microelectronics revenues declined, while RS/6000 revenues were essentially flat.
Services revenues were $5.0 billion, an increase of 22 percent compared with the fourth quarter of last year. In the fourth quarter, IBM Global Services signed approximately $6 billion in new business. This includes an eight-year, multimillion dollar contract with Lyonnaise des Eaux for management of its French water works technology operations, and a 10-year agreement with Federated Department Stores for disaster recovery services and help desk management.
Software revenues grew 4 percent year over year to $3.7 billion. A record 1.5 million Lotus Notes seats were shipped in the quarter, bringing the total installed base of Notes seats to about 9 million, or double that of year-end 1995. Revenues from Tivoli's TME systems management products were greater in the fourth quarter of 1996 than in full-year 1995.
Maintenance revenues decreased 6 percent from 1995's fourth quarter to $1.7 billion, while revenues from rentals and financing grew 9 percent to $1.0 billion.
The company's overall gross profit margin was 40.3 percent in the fourth quarter, compared with 41.7 percent in the same period of 1995.
Total expenses declined 2 percent year over year, while the expense-to-revenue ratio decreased from 30 percent to 28 percent.
IBM's tax rate in the fourth quarter was 29.9 percent compared with 33.4 percent in the fourth quarter of last year.
The average number of common shares outstanding in the fourth quarter was 513.4 million, compared with 552.4 million in the year-earlier period.
Revenues for the 12 months ended December 31, 1996 were $75.9 billion, an increase of 6 percent from the prior year's $71.9 billion.
Hardware sales revenues rose 2 percent year over year to $36.3 billion. Services revenues increased 25 percent to $15.9 billion. Software revenues grew 3 percent to $13.0 billion. Maintenance revenues decreased 6 percent to $7.0 billion. Revenues from rentals and financing increased 5 percent to $3.7 billion.
Net earnings for the 12 months ended December 31, 1996 were $5.9 billion, or $11.06 per common share, excluding a charge associated with research and development related to acquisitions in the first quarter of 1996. This compares with 1995 net earnings of $6.0 billion, or $10.46 per common share, excluding a charge associated with R&D related to the acquisition of Lotus Development Corporation. Net earnings in 1996 including the R&D charge related to the acquisitions were $5.4 billion, or $10.24 per common share, compared with net earnings in 1995 of $4.2 billion, or $7.23 per common share, including the Lotus R&D charge.
As of December 31, 1996, IBM had $8.1 billion in cash, compared with $7.7 billion as of year-end 1995.
Common share repurchases totaled $5.8 billion in 1996, including $1.9 billion in the fourth quarter. At year-end 1996, IBM had 508.0 million common shares outstanding versus 547.8 million at year-end 1995.
IBM's "core" debt -- debt in support of operations, excluding financing -- increased $295 million from December 31, 1995 to December 31, 1996 to a total of $2.2 billion. During the same period, debt supporting the company's worldwide credit operations grew $905 million to $20.6 billion.
Financial Results Attached
INTERNATIONAL BUSINESS MACHINES CORPORATION
SUPPLEMENTAL SCHEDULE - COMPARATIVE FINANCIAL RESULTS
(EXCLUDES EFFECT OF PURCHASED R&D IN 1996 AND 1995)*
(Dollars in millions except per share amounts)
Three Months Twelve Months
Ended December 31 Ended December 31
Percent Percent
1996 1995 Change 1996 1995 Change
------- ------- ------- ------- ------- -------
REVENUE
Hardware sales $11,660 $11,469 1.7% $36,316 $35,600 2.0%
Gross margin 36.6% 39.6% 35.6% 38.6%
Services 5,009 4,095 22.3% 15,873 12,714 24.8%
Gross margin 22.3% 22.3% 20.3% 21.0%
Software 3,718 3,578 3.9% 13,052 12,657 3.1%
Gross margin 68.4% 64.3% 68.7% 65.0%
Maintenance 1,755 1,862 -5.8% 6,981 7,409 -5.8%
Gross margin 47.1% 47.8% 47.6% 50.7%
Rentals
and financing 1,001 916 9.4% 3,725 3,560 4.6%
Gross margin 56.6% 55.1% 56.4% 55.4%
TOTAL REVENUE 23,143 21,920 5.6% 75,947 71,940 5.6%
GROSS PROFIT 9,321 9,151 1.9% 30,539 30,367 0.6%
Gross margin 40.3% 41.7% 40.2% 42.2%
OPERATING EXPENSES
S,G&A 5,093 5,392 -5.5% 16,854 16,766 0.5%
% of revenue 22.0% 24.6% 22.2% 23.3%
R,D&E (1,2) 1,332 1,248 6.8% 4,654 4,170 11.6%
% of revenue 5.8% 5.7% 6.1% 5.8%
OPERATING INCOME 2,896 2,511 15.3% 9,031 9,431 -4.2%
Other income 181 255 -29.2% 707 947 -25.3%
Interest expense 190 198 -4.6% 716 725 -1.3%
EARNINGS BEFORE
INCOME TAXES 2,887 2,568 12.4% 9,022 9,653 -6.5%
Pre-tax margin 12.4% 11.7% 11.9% 13.4%
Provision for
income taxes 864 857 0.6% 3,158 3,635 -13.1%
Effective tax
rate 29.9% 33.4% 35.0% 37.7%
NET EARNINGS $2,023 $1,711 18.3% $5,864 $6,018 -2.6%
Net margin 8.7% 7.8% 7.7% 8.4%
Preferred stock
dividends and trans-
action costs 5 5 20 62
NET EARNINGS
APPLICABLE TO COMMON
SHAREHOLDERS $2,018 $1,706 18.3% $5,844 $5,956 -1.9%
====== ====== ====== ======
NET EARNINGS PER
SHARE OF COMMON
STOCK $3.93 $3.09 27.2% $11.06 $10.46 5.7%
====== ====== ====== ======
AVERAGE NUMBER OF
COMMON SHARES OUT-
STANDING (M's) 513.4 552.4 528.4 569.4
* Supplemental information provided for comparative purposes:
(1) Twelve months 1996 excludes a $435 million
non-recurring, non-tax deductible charge for
purchased in-process research and development in
connection with the Tivoli Systems Inc. and
Object Technology International Inc. acquisitions
in March, 1996.
(2) Twelve months 1995 excludes a $1,840 million
non-recurring, non-tax deductible charge for
purchased in-process research and development in
connection with the Lotus Development Corporation
acquisition in July, 1995.
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
1996 1995 Change 1996 1995 Change
------- ------- ------- ------- ------- -------
REVENUE
Hardware sales $11,660 $11,469 1.7% $36,316 $35,600 2.0%
Gross margin 36.6% 39.6% 35.6% 38.6%
Services 5,009 4,095 22.3% 15,873 12,714 24.8%
Gross margin 22.3% 22.3% 20.3% 21.0%
Software 3,718 3,578 3.9% 13,052 12,657 3.1%
Gross margin 68.4% 64.3% 68.7% 65.0%
Maintenance 1,755 1,862 -5.8% 6,981 7,409 -5.8%
Gross margin 47.1% 47.8% 47.6% 50.7%
Rentals
and financing 1,001 916 9.4% 3,725 3,560 4.6%
Gross margin 56.6% 55.1% 56.4% 55.4%
TOTAL REVENUE 23,143 21,920 5.6% 75,947 71,940 5.6%
GROSS PROFIT 9,321 9,151 1.9% 30,539 30,367 0.6%
Gross margin 40.3% 41.7% 40.2% 42.2%
OPERATING EXPENSES
S,G&A 5,093 5,392 -5.5% 16,854 16,766 0.5%
% of revenue 22.0% 24.6% 22.2% 23.3%
R,D&E (1,2) 1,332 1,248 6.8% 5,089 6,010 -15.3%
% of revenue 5.8% 5.7% 6.7% 8.4%
OPERATING INCOME 2,896 2,511 15.3% 8,596 7,591 13.2%
Other income 181 255 -29.2% 707 947 -25.3%
Interest expense 190 198 -4.6% 716 725 -1.3%
EARNINGS BEFORE
INCOME TAXES 2,887 2,568 12.4% 8,587 7,813 9.9%
Pre-tax margin 12.4% 11.7% 11.3% 10.9%
Provision for
income taxes 864 857 0.6% 3,158 3,635 -13.1%
Effective tax
rate 29.9% 33.4% 36.8% 46.5%
NET EARNINGS $2,023 $1,711 18.3% $5,429 $4,178 30.0%
Net margin 8.7% 7.8% 7.1% 5.8%
Preferred stock
dividends and trans-
action costs 5 5 20 62
NET EARNINGS
APPLICABLE TO COMMON
SHAREHOLDERS $2,018 $1,706 18.3% $5,409 $4,116 31.4%
====== ====== ====== ======
NET EARNINGS PER
SHARE OF COMMON
STOCK $3.93 $3.09 27.2% $10.24 $7.23 41.6%
====== ====== ====== ======
AVERAGE NUMBER OF
COMMON SHARES OUT-
STANDING (M's) 513.4 552.4 528.4 569.4
(1) Twelve months 1996 includes a $435 million
non-recurring, non-tax deductible charge for
purchased in-process research and development in
connection with the Tivoli Systems Inc. and
Object Technology International Inc. acquisitions
in March, 1996.
(2) Twelve months 1995 includes a $1,840 million
non-recurring, non-tax deductible charge for
purchased in-process research and development in
connection with the Lotus Development Corporation
acquisition in July, 1995.
INTERNATIONAL BUSINESS MACHINES CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Dollars in millions)
At At
December 31 December 31 Percent
1996 1995 Change
----------- ----------- -------
ASSETS
Cash, cash equivalents,
and marketable securities $8,137 $7,701 5.7%
Receivables - net, inventories,
and prepaid expenses 32,558 32,990 -1.3%
Plant, rental machines,
and other property - net 17,407 16,579 5.0%
Investments and other assets 23,030 23,022 - -
-------- --------
TOTAL ASSETS $81,132 $80,292 1.0%
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt $12,957 $11,569 12.0%
Long-term debt 9,872 10,060 -1.9%
-------- --------
Total debt 22,829 21,629 5.5%
Accounts payable, taxes,
and accruals 21,043 20,079 4.8%
Other liabilities and
deferred income taxes 15,632 16,161 -3.3%
-------- --------
Total liabilities 59,504 57,869 2.8%
Stockholders' equity 21,628 22,423 -3.5%
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $81,132 $80,292 1.0%
======== ========