ARMONK, N.Y.—(BUSINESS WIRE)—July 18, 2006— IBM:
-- Diluted earnings per share of $1.30 from continuing
operations, up 14 percent as reported, or 16 percent excluding
non-recurring items from the second-quarter 2005;
-- Income from continuing operations of $2.0 billion, up 9
percent, or 11 percent excluding the non-recurring items;
-- Total revenues of $21.9 billion, down 2 percent as reported,
up 1 percent when adjusted for the impact of the divested PC
IBM today announced second-quarter 2006 diluted earnings per
common share of $1.30 from continuing operations, compared with
diluted earnings of $1.14 per share in the second quarter of 2005, a
year-over-year increase of 14 percent. Second-quarter income from
continuing operations was $2.0 billion compared with $1.9 billion in
the second quarter of 2005, an increase of 9 percent.
The company posted a 16 percent increase in diluted earnings per
share year over year without the second-quarter 2005 non-recurring
pretax items of a year ago, which included incremental restructuring
charges of $1.7 billion ($.72 per share), offset by a $1.1 billion
($.45 per share) gain on the sale of the PC business, and a $775
million ($.29 per share) legal settlement received from Microsoft.
Income from continuing operations increased 11 percent over the second
quarter of 2005 without the non- recurring items of a year ago.
Total revenues for the second quarter of 2006 of $21.9 billion
decreased 2 percent as reported and adjusting for currency from the
second quarter of 2005, which includes revenue from the divested PC
business. Excluding the PC revenue, revenues increased 1 percent
compared with the second quarter of 2005.
Samuel J. Palmisano, IBM chairman and chief executive officer,
said: "IBM had another solid quarter with good earnings-per-share
results. Our performance was led by our software business, which
generated $4.2 billion of revenue this quarter with strong margins,
and is a significant part of our integrated portfolio. Our System z
mainframe business returned to form this quarter, and we continued to
manage important transitions in parts of our services business, which
again improved margins. We continued to grow revenues in many key
emerging markets. Cash flow, a key strength of our business model,
drove high returns to shareholders through our stock buyback program.
"IBM has taken many strategic actions in recent years to
reposition the company. Our focus on higher-value segments of the
marketplace continues to deliver good results to shareholders, our
cash position improved significantly year over year, and we remain
committed to investing in our business and driving business
performance to generate strong returns for investors. IBM has returned
more than $5.8 billion to shareholders in the first half of the year."
From a geographic perspective, the Americas second-quarter
revenues were $9.5 billion, an increase of 1 percent as reported (2
percent, adjusting for currency and PCs) from the 2005 period.
Revenues from Europe/Middle East/Africa were $7.2 billion, down 4
percent (1 percent, adjusting for currency and PCs). Asia-Pacific
revenues decreased 9 percent (3 percent, adjusting for currency and
PCs) to $4.2 billion. OEM revenues were $939 million, up 34 percent
compared with the 2005 second quarter.
Revenues from Global Services, including maintenance, decreased 1
percent as reported and adjusting for currency to $11.9 billion in the
second quarter of 2006. IBM signed services contracts totaling $9.6
billion and ended the quarter with an estimated services backlog,
including Strategic Outsourcing, Business Transformation Outsourcing,
Global Business Services, Integrated Technology Services and
Maintenance, of $109 billion.
Hardware revenues decreased 7 percent (8 percent, adjusting for
currency) to $5.1 billion in the second-quarter 2006 compared to $5.6
billion in the year-ago period, which includes revenue from the
divested PC business. Hardware revenues without the PC business
increased 3 percent (2 percent, adjusting for currency).
Hardware revenues for the Systems and Technology Group totaled
$5.0 billion for the quarter, up 3 percent. Revenues from the System z
server products increased 7 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 7 percent. Revenues
from the System x server products were flat compared with the year-ago
period. Revenues from the System p UNIX servers decreased 10 percent
and revenues from the System i servers decreased 7 percent. Revenues
from Microelectronics increased 45 percent and revenues from System
Storage decreased 2 percent.
Revenues from Software were $4.2 billion, an increase of 5 percent
as reported and adjusting for currency compared with the second
quarter of 2005. Revenues from IBM's middleware brands, which include
WebSphere, Information Management, Tivoli, Lotus and Rational
products, were $3.2 billion, up 4 percent versus the second quarter of
2005. Operating systems revenues decreased 6 percent to $558 million
compared with the prior-year quarter. Revenues from other software and
services increased, led by solid growth in 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 17 percent. Revenues for Information
Management software, which enables clients to leverage information on
demand, increased 6 percent. Revenues from Tivoli software,
infrastructure software that enables customers to centrally manage
networks including security and storage capability, increased 12
percent, and revenues for Lotus software, which allows collaborating
and messaging by customers in real-time communication and knowledge
management, increased 6 percent year over year. Revenues from Rational
software, integrated tools to improve the processes of software
development, increased 8 percent compared with the year-ago quarter.
Global Financing revenues decreased 7 percent as reported and
adjusting for currency in the second quarter to $580 million.
The company's total gross profit margin was 41.2 percent in the
2006 second quarter compared with 39.4 percent in the 2005 period,
which includes the divested PC business. Excluding the PC business,
the second- quarter 2005 gross profit margin was 40.6 percent.
Total expense and other income increased 1 percent to $6.1 billion
compared with the prior-year period, which includes the non-recurring
items. SG&A expense decreased 24 percent primarily due to the
prior-year incremental restructuring charges of $1.5 billion. RD&E
expense increased 3 percent compared with the year-ago period.
Intellectual property and custom development income decreased to $188
million compared with $288 million a year ago. Other (income) and
expense was $196 million of income in the second quarter of 2006,
versus $1.7 billion of income in the same period last year, reflecting
the $775 million benefit for the Microsoft legal settlement and the
$1.1 billion gain from the sale of the PC business partially offset by
incremental charges of $236 million relating to restructuring.
IBM's effective tax rate in the second-quarter 2006 was 30.0
percent, compared with 32.3 percent in the second quarter of 2005. The
company's tax rate in the second-quarter 2005 increased 2.3 points due
to the effect of the second-quarter non-recurring actions.
Share repurchases totaled approximately $2.5 billion in the second
quarter. The weighted-average number of diluted common shares
outstanding in the second-quarter 2006 was 1.56 billion compared with
1.63 billion shares in the same period of 2005. As of June 30, 2006,
there were 1.52 billion basic common shares outstanding.
IBM ended the second quarter of 2006 with $10.0 billion of cash on
hand. The balance sheet remains strong, and the company is well
positioned to take advantage of opportunities.
Debt, including Global Financing, totaled $21.8 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 June 30, 2006, and Global Financing debt increased $813
million from year- end 2005 to a total of $21.3 billion, resulting in
a debt-to-equity ratio of 6.9 to 1.
Year-To-Date 2006 Results
Income from continuing operations for the six months ended June
30, 2006 was $3.7 billion, compared with $3.3 billion in the year-ago
period, which includes non-recurring pretax items for incremental
restructuring charges of $1.7 billion, offset by the $1.1 billion gain
on the sale of the PC business, and the $775 million legal settlement
received from Microsoft. Diluted earnings per share from continuing
operations were $2.37 compared with $1.98 per diluted share for the
2005 period. Revenues from continuing operations for the six-month
period totaled $42.5 billion, a decrease of 6 percent (4 percent,
adjusting for currency) compared with $45.2 billion for the six months
of 2005, which includes PC revenues of $2.9 billion for the first four
months of 2005 only. Excluding the divested PC business, revenues
increased 1 percent (2 percent, adjusting for currency) compared with
the six-month period of 2005.
For total operations, net income for the first six months of 2006
was $3.7 billion, or $2.37 per diluted share, compared with the six
months of 2005 net income of $3.2 billion, or $1.96 per diluted share,
which included a loss from discontinued operations of $27 million.