UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: January 17, 2002
(Date of earliest event reported)
INTERNATIONAL BUSINESS MACHINES CORPORATION
(Exact name of registrant as specified in its charter)
New York 1-2360 13-0871985
(State of Incorporation) (Commission File Number) (IRS employer Identification No.)
ARMONK, NEW YORK 10504
(Address of principal executive offices) (Zip Code)
914-499-1900
(Registrant's telephone number)
Item 5. Other Events
The registrant's press release dated January 17, 2002, regarding its
financial results for the periods ended December 31, 2001, including unaudited
consolidated financial statements for the periods ended December 31, 2001, is
Attachment I of this Form 8-K.
Attachment II of this Form 8-K is IBM's Chief Financial Officer John R.
Joyce's fourth quarter earnings presentation to securities analysts on Thursday,
January 17, 2002.
IBM's web site (www.ibm.com) contains a significant amount of information
about IBM, including financial and other information for investors
(www.ibm.com/investor/). IBM encourages investors to visit its various web sites
from time to time, as information is updated and new information is posted.
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, hereunto duly authorized.
Date: January 17, 2002
By: /s/ Mark Loughridge
-----------------------------------
(Mark Loughridge)
Vice President and Controller
ATTACHMENT I
ARMONK, N.Y., January 17, 2002 . . . IBM today announced fourth-quarter
2001 diluted earnings per common share of $1.33, a 10 percent decrease compared
with diluted earnings per common share of $1.48 in the fourth quarter of 2000.
Fourth-quarter 2001 net income was $2.3 billion, a 13 percent decrease from $2.7
billion in the year-earlier period. IBM's fourth-quarter 2001 revenues totaled
$22.8 billion, down 11 percent (8 percent at constant currency) compared with
the fourth quarter of 2000.
Louis V. Gerstner, Jr., IBM chairman and chief executive officer, said:
"This was a solid finish to a demanding year. We achieved strong profitability
and we continued to gain market share in high-priority segments of our
software, storage and server businesses. For example, our new 'Regatta' UNIX
servers, which didn't begin shipping until late in the quarter, are sold out. On
a full-year basis, our mainframe revenues grew for the first time since 1989.
Our services business also had over $15 billion in new signings, although many
of these signings also came very late in the quarter, reflecting the tough
business environment. We also once again demonstrated exceptional management of
our cost and expense structure, and we ended the year with very powerful free
cash flow.
"We had our share of challenges, too, but these were largely expected:
slow PC sales and ongoing weakness in our OEM business. Our overall revenue
decline came principally from these two units, and we've taken a number of
actions to improve our long-term competitiveness in these areas. As we have
demonstrated time after time, our diverse business portfolio allows us to
overcome weakness in certain areas and still deliver strong results.
"Business conditions remain difficult as we enter the new year, although
we believe that our business will strengthen as we move through the year," Mr.
Gerstner said. "Further, and most important, we have absolutely no doubt that
customer buying patterns throughout the world are continuing to shift in IBM's
favor. Customers increasingly are demanding fully integrated technology -- not
the latest single-function offerings from the piece-part makers -- and that
plays directly to IBM's strengths in e-business software, in powerful, secure
servers, and in our unparalleled global services capabilities."
In the Americas, fourth-quarter revenues were $9.8 billion, a decrease of
9 percent (8 percent at constant currency) from the 2000 period. Revenues from
Europe/Middle East/Africa were $6.9 billion, down 6 percent (6 percent at
constant currency). Asia-Pacific revenues declined 10 percent (1 percent at
constant currency) to $4.5 billion. OEM revenues decreased 34 percent (33
percent at constant currency) to $1.6 billion compared with the fourth quarter
of 2000.
Revenues from Global Services, including maintenance, declined 1 percent
(up 1 percent at constant currency) in the fourth quarter to $9.1 billion.
Global Services revenues, excluding maintenance, declined 2 percent (up 1
percent at constant currency). New contract signings for Global Services in the
fourth quarter were approximately $15 billion. IBM's total services backlog at
year-end 2001 was $102 billion. Overall, the gross profit margin for Global
Services improved 1.2 points year over year to 28.2 percent.
Hardware revenues decreased 24 percent (21 percent at constant
currency) to $8.7 billion from the 2000 fourth quarter. Revenues from z900
mainframe servers were essentially flat, reflecting a difficult
year-over-year comparison. Mainframe computing capacity grew 12 percent in
the fourth quarter as measured in MIPS (millions of instructions per second).
Revenues from IBM's UNIX-based pSeries declined, in large part because of a
transition to IBM's new "Regatta" family of UNIX servers, which began
shipping on December 14. Personal computer and microelectronics revenues
decreased substantially over the prior year's quarter, principally due to
price pressures in PCs and an ongoing downturn affecting the worldwide
semiconductor and OEM markets. Revenues from IBM's high-end storage product
line -- Shark -- grew in a declining market.
Page 1
Software revenues increased 6 percent (8 percent at constant currency) to
$3.8 billion compared to the prior year's fourth quarter. Overall, IBM's
middleware software revenues grew 10 percent at constant currency. IBM's premier
data management and WebSphere products grew 48 percent and 43 percent,
respectively. Operating system revenues fell 2 percent. The company's total
gross profit margin in software improved 1.8 points, to 85.2 percent.
Global Financing revenues decreased 5 percent (4 percent at constant
currency) in the fourth quarter to $927 million. As expected, revenues from the
Enterprise Investments/Other area, which includes products for specialized
customer uses, declined 20 percent (18 percent at constant currency) compared to
the fourth quarter of 2000 to $340 million. IBM has been consistently shifting
development and distribution of products in this segment to third-party
companies.
The company's total gross profit margin improved to 38.3 percent in the
2001 fourth quarter from 37.3 percent in the 2000 fourth quarter.
Despite absorbing workforce-balancing actions and writedowns of certain
equity investments, IBM's total expenses improved 6 percent year over year to
$5.4 billion. The improvement came from each of the company's two main expense
categories: selling, general and administrative expenses as well as research and
development expenses. IBM continued to reduce its expenses and improve operating
efficiencies through the use of electronic procurement, sales, education and
customer support systems. These systems -- known as e-procurement, IBM.com,
e-learning and e-Care -- have resulted in substantial productivity improvements.
IBM's tax rate in the fourth quarter was 29.3 percent compared with 29.5
percent in the fourth quarter of 2000.
IBM spent approximately $1.0 billion on share repurchases in the fourth
quarter. The average number of basic common shares outstanding in the quarter
was 1.72 billion compared with 1.75 billion shares in the same period of 2000.
Full-year 2001 Results
Net income for the year ended December 31, 2001 was $7.7 billion, or $4.35
per diluted common share, compared with net income of $8.1 billion, or $4.44 per
diluted common share, in 2000. Revenues in 2001 totaled $85.9 billion, a decline
of 3 percent (up 1 percent at constant currency) compared with revenues of $88.4
billion in the year-earlier period.
In the Americas, full-year revenues were $37.4 billion, down 3 percent (2
percent at constant currency) from the 2000 period. Revenues from Europe/Middle
East/Africa were $24.0 billion, a decrease of 1 percent (up 3 percent at
constant currency). Asia-Pacific revenues fell 2 percent (up 8 percent at
constant currency) to $17.2 billion. OEM revenues decreased 7 percent (6 percent
at constant currency) to $7.2 billion.
Revenues from Global Services totaled $35.0 billion, an increase of 5
percent (10 percent at constant currency). Hardware revenues in 2001 were $33.4
billion, a decrease of 12 percent (8 percent at constant currency). Software
revenues totaled $12.9 billion, an increase of 3 percent (7 percent at constant
currency). Global Financing revenues totaled $3.4 billion, a decrease of 1
percent (up 1 percent at constant currency). Revenues from the Enterprise
Investments/Other area declined 18 percent (14 percent at constant
Page 2
currency) to $1.2 billion.
Common share repurchases totaled approximately $5.3 billion in 2001. The
average number of basic shares outstanding was 1.73 billion in 2001 compared
with 1.76 billion in 2000. There were 1.72 billion basic common shares
outstanding at December 31, 2001.
IBM completed 2001 with $6.4 billion in cash, after major expenditures
which included the share repurchases, capital investments of $5.6 billion and an
8 percent dividend increase.
The company's debt in support of operations, excluding global financing,
increased $543 million from year-end 2000 to $1.6 billion, resulting in a
debt-to-capitalization ratio of 7 percent at the end of 2001. Global financing
debt declined $2.0 billion from year-end 2000 to a total of $25.5 billion,
resulting in a debt-to-equity ratio of 6.8 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, as discussed in
the company's filings with the Securities and Exchange Commission.
Financial Results Attached
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
2001 2000* Change 2001 2000* Change
------- ------- ------- ------- ------- -------
REVENUE
Global Services $9,061 $9,186 -1.4% $34,956 $33,152 5.4%
Gross margin 28.2% 27.0% 27.5% 26.7%
Hardware 8,714 11,463 -24.0% 33,392 37,777 -11.6%
Gross margin 26.3% 30.4% 27.7% 28.4%
Software 3,784 3,571 6.0% 12,939 12,598 2.7%
Gross margin 85.2% 83.4% 82.5% 81.9%
Global Financing 927 971 -4.6% 3,426 3,465 -1.1%
Gross margin 55.4% 42.9% 50.6% 43.3%
Enterprise Investments/
Other 340 425 -20.0% 1,153 1,404 -17.9%
Gross margin 45.8% 44.9% 45.0% 46.8%
TOTAL REVENUE 22,826 25,616 -10.9% 85,866 88,396 -2.9%
Page 3
GROSS PROFIT 8,745 9,553 -8.4% 31,782 32,054 -0.9%
Gross margin 38.3% 37.3% 37.0% 36.3%
EXPENSE
S,G&A 4,176 4,340 -3.8% 15,490 15,639 -1.0%
% of revenue 18.3% 16.9% 18.0% 17.7%
R,D&E 1,263 1,449 -12.8% 5,006 5,151 -2.8%
% of revenue 5.5% 5.7% 5.8% 5.8%
Other income (48) (125) -62.4% 95 (617) -115.4%
Interest expense 54 102 -47.3% 238 347 -31.4%
TOTAL EXPENSE 5,445 5,766 -5.6% 20,829 20,520 1.5%
% of revenue 23.9% 22.5% 24.3% 23.2%
INCOME BEFORE
INCOME TAXES 3,300 3,787 -12.9% 10,953 11,534 -5.0%
Pre-tax margin 14.5% 14.8% 12.8% 13.0%
Provision for
income taxes 967 1,117 -13.4% 3,230 3,441 -6.1%
Effective tax
rate 29.3% 29.5% 29.5% 29.8%
NET INCOME $2,333 $2,670 -12.7% $7,723 $8,093 -4.6%
Net margin 10.2% 10.4% 9.0% 9.2%
Preferred stock
dividends 0 5 10 20
NET INCOME
APPLICABLE TO COMMON
STOCKHOLDERS $2,333 $2,665 -12.5% $7,713 $8,073 -4.5%
======= ======= ======= =======
EARNINGS PER
SHARE OF COMMON
STOCK - ASSUMING
DILUTION $1.33 $1.48 -10.1% $4.35 $4.44 -2.0%
======= ======= ======= =======
EARNINGS PER
SHARE OF COMMON
STOCK - BASIC $1.35 $1.52 -11.2% $4.45 $4.58 -2.8%
======= ======= ======= =======
AVERAGE NUMBER OF
COMMON SHARES OUT-
STANDING (M's)
DILUTED 1,758.0 1,790.6 1,771.2 1,812.1
BASIC 1,722.4 1,749.2 1,733.3 1,763.0
* Reclassified to conform with 2001 presentation.
Page 4
INTERNATIONAL BUSINESS MACHINES CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At At
(Dollars in millions) December 31, December 31, Percent
2001 2000 Change
----------- ----------- -------
ASSETS
Cash, cash equivalents,
and marketable securities $6,393 $3,722 71.8%
Receivables - net, inventories,
and prepaid expenses 36,068 40,158 -10.2%
Plant, rental machines,
and other property - net 16,504 16,714 -1.3%
Investments and other assets 29,348 27,755 5.7%
-------- --------
TOTAL ASSETS $88,313 $88,349 -0.0%
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt $11,188 $10,205 9.6%
Long-term debt 15,963 18,371 -13.1%
-------- --------
Total debt 27,151 28,576 -5.0%
Accounts payable, taxes,
and accruals 23,931 26,201 -8.7%
Other liabilities 13,617 12,948 5.2%
-------- --------
TOTAL LIABILITIES 64,699 67,725 -4.5%
STOCKHOLDERS' EQUITY 23,614 20,624 14.5%
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $88,313 $88,349 -0.0%
======== ========
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
FOURTH QUARTER 2001
------------------------------------------------
Pre-tax
(Dollars in millions) -------- Revenue -------- Pre-tax Income
External Internal Total Income Margin
-------- -------- -------- ------- -------
SEGMENTS
Global Services $9,061 $724 $9,785 $1,413 14.4%
% change -1.4% 22.7% 0.1% 8.4%
Technology 1,879 530 2,409 (293) -12.2%
% change -30.2% -36.5% -31.7% -200.7%
Personal and Printing
Systems 2,910 23 2,933 (17) -0.6%
Page 5
% change -32.0% -11.5% -31.9% -116.2%
Enterprise Systems 4,074 163 4,237 719 17.0%
% change -13.2% -6.3% -13.0% -18.0%
Software 3,784 295 4,079 1,167 28.6%
% change 6.0% 26.6% 7.2% 21.4%
Global Financing 921 189 1,110 265 23.9%
% change -5.5% -24.1% -9.3% -8.0%
Enterprise Investments 336 2 338 (74) -21.9%
% change -21.9% -21.4% 14.9%
TOTAL SEGMENTS 22,965 1,926 24,891 3,180 12.8%
% change -11.1% -8.6% -10.9% -14.9%
Eliminations / Other (139) (1,926) (2,065) 120
TOTAL IBM $22,826 $0 $22,826 $3,300 14.5%
% change -10.9% -10.9% -12.9%
FOURTH QUARTER 2000*
----------------------------------------------------
Pre-tax
(Dollars in millions) -------- Revenue ------- Pre-tax Income
External Internal Total Income Margin
-------- -------- ------- ------- -------
SEGMENTS
Global Services $9,186 $590 $9,776 $1,303 13.3%
Technology 2,693 835 3,528 291 8.2%
Personal and Printing
Systems 4,278 26 4,304 105 2.4%
Enterprise Systems 4,694 174 4,868 877 18.0%
Software 3,571 233 3,804 961 25.3%
Global Financing 975 249 1,224 288 23.5%
Enterprise Investments 430 0 430 (87) -20.2%
TOTAL SEGMENTS 25,827 2,107 27,934 3,738 13.4%
Eliminations / Other (211) (2,107) (2,318) 49
TOTAL IBM $25,616 $0 $25,616 $3,787 14.8%
* Reclassified to conform with 2001 presentation.
Page 6
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
TWELVE MONTHS 2001
-----------------------------------------------------
Pre-tax
(Dollars in millions) --------- Revenue -------- Pre-tax Income
External Internal Total Income Margin
-------- -------- -------- ------- -------
SEGMENTS
Global Services $34,956 $2,647 $37,603 $5,161 13.7%
% change 5.4% 8.5% 5.7% 14.3%
Technology 7,970 2,325 10,295 (374) -3.6%
% change -6.4% -22.7% -10.7% -155.1%
Personal and Printing
Systems 11,982 73 12,055 (153) -1.3%
% change -20.6% 4.3% -20.5% -251.5%
Enterprise Systems 13,743 710 14,453 1,830 12.7%
% change -3.2% 9.4% -2.6% -4.8%
Software 12,939 981 13,920 3,168 22.8%
% change 2.7% 18.5% 3.7% 13.4%
Global Financing 3,407 836 4,243 1,143 26.9%
% change -2.7% -11.4% -4.5% -2.8%
Enterprise Investments 1,118 4 1,122 (317) -28.3%
% change -18.3% 33.3% -18.2% -6.7%
TOTAL SEGMENTS 86,115 7,576 93,691 10,458 11.2%
% change -2.6% -4.6% -2.8% -4.0%
Eliminations / Other (249) (7,576) (7,825) 495
TOTAL IBM $85,866 $0 $85,866 $10,953 12.8%
% change -2.9% -2.9% -5.0%
TWELVE MONTHS 2000*
----------------------------------------------------
Pre-tax
(Dollars in millions) -------- Revenue ------- Pre-tax Income
External Internal Total Income Margin
-------- -------- ------- ------- -------
SEGMENTS
Global Services $33,152 $2,439 $35,591 $4,517 12.7%
Technology 8,519 3,007 11,526 679 5.9%
Personal and Printing
Systems 15,098 70 15,168 101 0.7%
Enterprise Systems 14,194 649 14,843 1,922 12.9%
Software 12,598 828 13,426 2,793 20.8%
Global Financing 3,500 944 4,444 1,176 26.5%
Enterprise Investments 1,369 3 1,372 (297) -21.6%
TOTAL SEGMENTS 88,430 7,940 96,370 10,891 11.3%
Eliminations / Other (34) (7,940) (7,974) 643
TOTAL IBM $88,396 $0 $88,396 $11,534 13.0%
* Reclassified to conform with 2001 presentation.
Page 7
-1-
ATTACHMENT II
================================================================================
IBM 4Q 2001
EARNINGS PRESENTATION
JANUARY 2002
Thank you, Mandy. Good afternoon. This is Hervey Parke, Vice President of
Investor Relations for IBM, thank you all for joining us. Let me quickly give
you a few pieces of information.
At this time, the opening page of the presentation should have
automatically loaded and you should be on Chart 1, the title page.
After the last chart in the presentation we will provide you an index to
go back to specific slides during the Q&A. Or, you can jump to the index
at any time by clicking on the index link located on the navigation bar on
the left side of your screen.
For printing slides, there are two alternatives:
As in the previous quarter, there is a link on the index pages so
you can download the entire set of charts for printing.
Or, there is a link on the navigation bar so you can download the
charts at any time.
In about 45 minutes, you will also be able to link to the prepared remarks
off that same navigation bar.
And finally, a replay of this webcast will be available on this website by
this time tomorrow.
Now, please click on the NEXT button and move to Chart 2.
Certain comments made by John Joyce or myself during this call may be
characterized as forward looking under the Private Securities Litigation
Reform Act of 1995.
Those statements involve a number of factors that could cause actual
results to differ materially.
Additional information concerning these factors is contained in the
company's filing with the SEC. Copies are available from the SEC, from the
IBM web site, or from us in Investor Relations.
Now, please click again on the NEXT button for Chart 3.
And at this time, let me turn the call over to John Joyce, IBM's Senior Vice
President and Chief Financial Officer.
Thanks, Hervey. Good afternoon.
It has been a tough year, but our 4th-quarter results once again were strong
relative to our competitors in the technology sector.
o Nearly $23 billion in revenues
o $2.3 billion in after-tax profit,
o And for the full year, $7.4 billion in Free Cash Flow. We ended the
year with $6.4 billion in cash.
And, we continued to gain share.
Year-to-year, our 4th-quarter revenue declined, reflecting a difficult economic
environment, worldwide. But all of the decline at constant currency was due to
two heavily distressed segments, PCs and OEM Technology.
As always, we benefited from the breadth of our portfolio.
Back in October, we were asked about our ability to grow earnings per
share sequentially by nearly 50% from the 3rd quarter to the 4th quarter
to achieve average Street expectations, despite the difficult economic
environment.
We said it was achievable if we could get the same sales yield from our
pipeline that we realized in the difficult 3rd quarter. I'm happy to
report that we executed well and hit that EPS growth target.
Of course, as is so often the case, areas of strength offset areas of
weakness. And in the 4th quarter --
o We did better than we expected in zSeries mainframes, our new
Regatta server in pSeries, and in Software.
o We had weaker results than anticipated in our Technology Group and
in our PC Division.
There's an important point to be made regarding this tradeoff, a very
important point:
o The weak revenue performance of the PCs and HDDs, both down
about 35% year-to-year, has little bearing on our earnings per
share.
o Strong performance in zSeries and software is very helpful.
o So you can see how our revenue performance in the quarter was
less than expected, but EPS was on track.
I also want to address Global Services here. While the revenue grew just
1% at constant currency, the underlying dynamics point to good growth in
2002.
We were pleased with our 4th-quarter signings. Over $15 billion,
which was up 54% from the 3rd quarter and 22% from last year's 4th
quarter.
We had indicated in October that our pipeline was as big as we'd
ever seen it. That's still the case, but our customers have been
very careful about their decisions, given the economic environment.
So while our signings have been big, customer decisions came late in
the quarter, and this defers the start of that revenue until the 1st
quarter.
Also in 2002, the annuity-like portions of Global Services -
Outsourcing and Maintenance, should sustain us until the more
transaction-based contracts return to their historical growth rates
with the economy recovering.
So we feel very good about our Services business, our strategy, and
our position in the marketplace. In a year of uncertain economic
growth, Services should benefit early from recent Outsourcing
signings, and then pick up further speed in the 2nd half with the
more economically sensitive Consulting businesses.
The 4th quarter was a solid finish to a demanding year.
o Particularly in Software, and in Services signings, these two
segments generated nearly 80% of our profit in the 4th quarter.
o We had sustained, strong customer demand for our zSeries mainframe
and a fast start for our new pSeries Regatta.
o Our R&D efforts have produced products that are extending our
competitive lead, and patents that will ensure that leadership
remains.
o We continued to manage cost and expense with a proper balance
between current results and future opportunity.
o And we generated strong cash flow in support of our business model.
Before I get into the details of the 4th quarter, let me hit some key points
about how we see 2002.
We said last quarter, it is largely an economic call.
o Most analysts seem to feel that a slow recovery will start
around midyear.
o And customers are still taking a careful look at all of their
investments. But they continue to spend on applications and
products that provide the fastest returns, and they're
building cost-efficient infrastructures. We've got the
solutions they're looking for.
But also, in this environment, we have been taking some pretty tough
actions which will yield results in 2002.
o We've made excellent progress on our objective of reducing
indirect expense by $2 billion by the end of 2002, cutting
over a billion in 2001. And we're reinvesting these savings in
direct expense that can drive future revenue and share gain.
o In addition, we've been focusing on our Technology Group and
our PC Group which, between the two of them, lost over $500
million in 2001.
We've rebalanced our resources in both of them, and in
our PC Division, we continued to tighten our business
model by
contracting to outsource assembly and distribution of
our desktop PC line.
We should be able to improve our results in these units
regardless of the economy.
With our cost-cutting actions, in combination with our strong business
model, our share gains in key segments, and our strong balance sheet, we
feel there are few companies as well positioned to address the coming year
as IBM.
And at this early stage of the year, we feel that the consensus estimate
for earnings per share in 2002 is reasonable.
Now let's get into the details of the 4th-quarter results. Click on the NEXT
button for Chart 4.
Here's the quick financial overview of the 4th quarter:
o Revenue, at $22.8 billion was up 12% sequentially from the 3rd
quarter.
Year-to-year, it was down 8% at constant currency, and 11%, as
reported, driven entirely by OEM and PCs.
So with the weakening Yen, currency was about a
two-and-a-half-point hit, about a point worse than the spot
rates suggested three months ago.
Let me just note here that based on current spot rates, the
negative effect of currency on revenue for the 1st quarter
would still be about 2 points.
o Pretax income was down 13%, compared to the 19% decline last
quarter, and again principally due to the slowdown in our Technology
OEM businesses.
o Our tax rate was 29.3%, down two tenths of a point from a year ago.
Our full-year tax rate was at 29.5%, down 3 tenths of a point
from 2000.
o Average diluted shares outstanding for the quarter were 1 billion,
758 million, down 1.8% from last year.
o And earnings per share were $1.33, down 15 cents or 10%.
In these 4th-quarter results we've absorbed currency,
workforce-rebalancing initiatives, and a minor equity
write-down. These three factors contributed about 12 cents to
our 15-cent year-to-year decline.
We've included our full-year results on these charts, and let me use this one to
put our results in perspective:
The economy created a lot of turmoil in 2001.
o Corporate profits declined dramatically.
o Many of our competitors in the IT sector lost money.
But...
o At constant currency, IBM's revenue actually grew in 2001, and
o We generated $11 billion of pretax profit, with the vast
majority of that coming from Services and Software.
Now, let's turn to Revenue in the 4th quarter, starting with a geographic
perspective. Click the NEXT button for Chart 5.
Over 90% of our revenue comes from sales to end-user customers, which we break
into three geographic areas.
On a year-to-year basis, at constant currency, they were down 6%.
o The Americas declined 8%, driven by the Industrial,
Communications, and Distribution sectors.
o Europe declined 6%, with almost no currency impact. The
Financial Services sector was weak, notably in Germany, but
the Automotive sector did well, due to Services.
o Asia Pacific declined 1%, before 9 points of currency impact.
Here again, the Communications sector was weak, but the
Financial Services and Automotive sectors were strong, also
due to Services.
o Across all geographies, the Public Sector was strong, but the
small and medium businesses were weak, since they were heavily
impacted by the PC revenue decline.
Finally, our OEM business -- which had declined 22% from 2nd to 3rd quarter,
started to show a little life by growing 7% from the 3rd to the 4th quarter.
Still, on a year-to-year basis OEM revenue declined 34% in the 4th quarter.
In our Microelectronics business, our OEM customers made a little more
progress in working off inventory in addition to generating some
sequential revenue growth.
And in our hard disk drive business, industry demand remained weak, due to
continued weakness in PC volumes.
Now, if you'll click on the Next button for Chart 6, I'll touch on Revenue by
major line item.
Let me start with Global Services.
Revenue was $9.1 billion, growing 1% year-to-year at constant currency,
and 4% sequentially from the 3rd quarter.
Our annuity-like Outsourcing and Maintenance businesses continued to do
well, but we felt the economic pressure in Consulting and Systems
Integration as did the rest of the industry.
Hardware revenue in the 4th quarter was $8.7 billion, a 21% decline at constant
currency.
The new Regatta UNIX server got off to a fast start. Shark storage
subsystems grew in a very weak market. And despite a very difficult
comparison base, our zSeries mainframes grew revenue for the 5th quarter
in a row.
However, as I mentioned -- our OEM businesses -- Microelectronics and hard
disk drives continued to have significant year-to-year revenue declines,
despite slight sequential-quarter growth. PCs declined significantly.
Software, at $3.8 billion, grew 8% at constant currency.
We had strong performance across all geographies, gaining more share on
our competitors, particularly in Data Management and WebSphere.
Global Financing revenue at $927 million, declined 4% at constant currency.
Income-generating assets were down from last year, and financing
originations were $5.3 billion in the quarter.
Now let's review gross profit margin, Chart 7.
Total gross profit margin for the 4th quarter was 38.3%, up a point from last
year, and up 2 points from the 3rd quarter.
Gross margin improved in each revenue segment except hardware which
declined by 4 points.
This decline in hardware was about the same as in the 3rd quarter,
and for the same reason, low volumes in our technology group and
pricing pressures in PCs and hard disk drives.
Global Services gross profit margin improved 1.2 points.
Maintenance improved, and Services was stable.
Software gross profit margin improved 1.8 points.
And our Global Financing gross profit margin improved 12 points,
reflecting a downward trend in interest rates.
Now let's turn to Expense, Chart 8.
Total expense was $5.4 billion, down 6% from last year.
SG&A decreased 4%, and R&D decreased 13%, primarily driven by the integration of
Lotus and Tivoli into our Software business.
We continued to cut discretionary expense like travel and consulting.
But also underneath this, is the billion-dollar reduction in
infrastructure expenses we've made this year.
As we reduced these expenses, we continued to increase investments
in key areas where we can leverage our leadership, like development
and sales for Software, Services, Servers and Storage.
Let me add that our intellectual property income and licensing royalties
were flat in the quarter, which included the sale of our optical
transceiver business to JDS Uniphase. For the year, IP was down about $200
million.
And finally, we continue to invest in Information Technology to improve
our own efficiency in procurement and customer support.
As you can see, we're watching expense carefully. But the strength of our
business model is that we are not forced to eliminate important programs during
a period of weak revenues.
Now before we move on, let me touch on some issues that have been raised for all
companies in 2002 that are mainly noncash items, notably:
o Goodwill accounting changes
o Adjustments to pension accounting assumptions
o Equity investment write-downs, and
o Currency hedges.
For IBM, based on what we know now, it's reasonable to assume that the net
effect of these items on year-to-year earnings will not be material.
Now let's move to Cash Flow, Chart 9.
Cash flow was strong in 2001.
We generated $7.4 billion of Free Cash Flow, slightly more that last year.
Our ongoing focus on working capital management continued to yield
results.
This continued strong cash flow, even in a difficult economic environment, gave
us the flexibility to make necessary, appropriate investments for the future of
our business or for share repurchases.
$5.6 billion on gross capital expenditures, mainly for our Services and
Financing businesses, as well as in selected hardware businesses, like
Microelectronics.
$5.6 billion in research and development investments, that contributed to
the ninth year in a row of our leading the world in generating new
patents.
A billion dollars for acquisitions -- principally Informix.
$1 billion in dividends to our shareholders.
And $5.3 billion dollars in stock buyback.
This is real cash flow.
Now let's look at the Balance Sheet, Chart 10.
The balance sheet remains very healthy.
Cash on the balance sheet stands at $6.4 billion, $2.7 billion above last
year's level.
Total debt decreased $1.4 billion.
94% of our debt is for our Global Financing business, which was leveraged
at a comfortable 6.8 to 1.
The remaining $1.6 billion of Core Debt stands at a conservative 7%
debt-to-capital.
As I've said in previous quarters, this is not the environment to have growing
inventories or accounts receivables.
Both are down year-to-year.
The management of our balance sheet and cash flow is taken very seriously
and is a key focus. Our asset and debt levels demonstrate that we are
executing well.
Now let me turn to a discussion of some of our individual businesses, starting
with Global Services, Chart 11.
Global Services, at $9.1 billion, was up 1% at constant currency.
Signings were over $15 billion, up 22%. We had:
o 14 deals greater than $100 million,
o of which two were a billion dollars or more.
o We had over $600 million of web-hosting signings, up 45%, bringing
our total web-hosting signings to $2.4 billion this year.
Our backlog now stands at $102 billion.
In revenue, Maintenance was up 2%, and Services was up 1%.
Services revenue growth slowed this quarter due to:
o A slowdown in Consulting and Systems Integration,
o Slower signings back in the middle of the year, and
o The timing of this quarter's signings.
Several large contracts closed late in the quarter,
resulting in lower current-period revenue yield.
Customers wanted to sign the contracts to start
realizing the benefits. But they are just being very
careful in this environment.
An important note on signings: While a slowdown in signings in the middle
of the year, particularly in short-term engagements, impacted our
4th-quarter revenue, the acceleration in signings in the 4th quarter will
contribute to a pickup in 2002.
Now let me review the three major services segments.
First, Outsourcing and e-Sourcing, which is more than 40% of Global Services,
grew 6% at constant currency.
o Our strong signings in the 4th quarter, and our strong pipeline of
opportunity, demonstrate that customers recognize the need to
improve their competitiveness, particularly in this economic
environment. They want integrated IT solutions and fast cost
savings.
o Outsourcing growth was again strongest in the Asia Pacific region,
where our investment in services capabilities has really paid off.
o And Hosting became a billion dollar business for us in 2001.
Next, Integrated Technology Services, which includes product support services
and maintenance, is a third of Global Services.
o IT Services, excluding maintenance, was up 4%.
o Services in support of server consolidation and business recovery
continued to grow, but,
o Revenue growth has been moderating for services in support of
non-IBM hardware deployment, as you would expect with the slowdowns
in PCs, telecommunications, and networking equipment providers.
Finally, Business Innovation Services, which includes consulting and systems
integration, is slightly less than a quarter of Global Services revenue.
This segment of Services, which is transaction-based, short-term
contracts, has been most impacted by the economy.
And yet our B-I-S revenue declined only 6% year-to-year.
o The rate of slowdown varied across the geographies this quarter, but
it was most predominant in the Americas.
Customers were investing less in custom application
development and e-business strategy consulting.
o Yet we did have successes. We continued to see year-to-year growth
in key e-business areas:
Supply chain and e-business integration grew significantly,
while ERP was up moderately.
Customers continued to spend on these deployments that yield
significant cost savings.
We feel very good about IBM Global Services.
For the year:
o Services revenue grew 11% at constant currency.
o We gained share.
o Our profit margin increased.
We ended the year:
o with a $102 billion backlog
o a strong signings quarter
o solid gross profit margins.
o and a healthy pipeline going into 2002.
In fact, we just signed a $1.2 billion CRM outsourcing
agreement, and an alliance to deploy wireless services,
with Nextel.
Looking forward:
o The 4th-quarter signings and converting the strong pipeline
into contracts should have a positive impact on 2002 revenue
growth.
o We've been through these dynamics before, a slowdown in
signings and revenue, followed by a recovery, back with Y2K.
But with our skills and capabilities, we will continue to gain
share.
o And we expect good growth in 2002
Now, Click on the NEXT button for Chart 12, and I'll discuss eServers and
Storage.
In this tough environment, customers continued to be very cautious with their IT
spending. We did see continued server consolidation.
Our eServers and storage subsystems, we expect, gained roughly 4 points of
market share last year.
zSeries mainframes had their fifth consecutive quarter of revenue growth, a
momentum that began with the z900 announcement in October of 2000.
For the year, zSeries revenue grew more than 15%, the first full year of
revenue growth since 1989, and a clear recognition of the unique
advantages mainframes offer our customers.
Against a very tough comparison, MIPS again grew by double digits, driven
by a 35% increase in new application workload, by server consolidation and
leveraging Linux. 11% of the MIPS shipped were for Linux.
Later this year, we will bring mainframe functionality to the mid-market,
offering our small and medium-sized customers the ability to run new
workloads on a z-platform.
pSeries revenue was up more than 35% sequentially, but down nearly 20% when
compared to last year's strong 4th quarter.
At the high end, the p690 Regatta, which only began to ship in December,
did even better than we expected and was sold out in the quarter.
Entry and mid-range pSeries servers were down significantly year-to-year,
yet we still expect to gain share in both of these segments. And, we will
further strengthen our technology leadership in these segments by bringing
Regatta's Power4 technology to these product lines later this year.
Revenue for the iSeries servers declined, but again we expect to have gained
share in the $10 thousand to $1 million server category.
Similar to zSeries, the iSeries benefited from server consolidation and
Linux this quarter.
For example, in Japan, a subsidiary of NTT replaced Sun and Oracle with an
iSeries model 820, running Linux in a dynamic partition.
ABN AMRO and Caterpillar are two customers who have consolidated multiple
servers on iSeries.
xSeries revenue also declined, reflecting the extremely competitive environment
in the low-end server market.
In a repeat of the strategy we used in the UNIX market, we are investing
in game-changing technologies in IBM's Intel-based servers by adding some
of the advanced functions previously available only on high-end servers.
One example is technology developed for mainframes that proactively
corrects software and hardware failures before they occur. By reducing
repair and downtime, the total cost of ownership is cut by as much as 50%
over a five-year period.
Our disk and tape Storage had a good quarter with growth in revenue, margin and
profit.
Growth in disk storage was 2% year-to-year, driven by our high-end Shark
which grew 6%, in a market declining at approximately 20%.
I have previously spoken with you about our focus on reducing cost and
expense, and it is paying off in storage.
Gross margins for Storage increased both sequentially and
year-to-year in this fiercely competitive environment.
When I talk with customers, they tell me they're looking for networked
storage solutions to help reduce cost. And we're seeing over 65% of Sharks
being ordered with network-enabled features.
A recent IDC report shows IBM moving into the number-two position in SAN
deployment. This success was driven by our end-to-end focus that includes
software, services, interoperability with the leading providers of SAN
components, and the strongest lineup of storage hardware we've ever had.
Now click on the NEXT button for Personal and Printing Systems, Chart 13.
Revenue in this Group was down 31% year-to-year at constant currency, although
up 4% sequentially from 3rd quarter.
We lost $17 million in this segment in the 4th quarter as we continued to
focus on cost, expense and our go-to-market model.
Last quarter 44% of the PC Division's worldwide sales were direct,
with 66% in the U.S.
We have a target of 50% worldwide for this division in the 1st
quarter.
The improving direct model, continued cost improvements, and initiatives
like our recently announced outsourcing agreement with Sanmina-SCI should
improve our results.
Now if you'll move to Chart 14, we'll cover Technology.
Revenue for our OEM microelectronics division was down 36% year-to-year,
reflecting the continued severe downturn in the semiconductor industry.
We had a modest sequential up-tick from the 3rd quarter, suggesting we've
hit the bottom.
Our customers' inventory of IBM components, which had been about $250
million at the end of both the 2nd and 3rd quarters, was down 50 million
by the end of the 4th.
Revenue from Hard Disk Drives was also down year-to-year, yet up sequentially
from the 3rd quarter.
As we look into the 1st quarter, we expect to start shipping our three new
drives in volume:
o our Discovery II server drive
o Cascade, the new mobile drive we announced in November, the
industry's highest-capacity 2.5-inch mobile drive. And,
o Vancouver, the new desktop drive also announced in November,
the industry's most power-efficient 7200-RPM desktop drive.
Now click on the NEXT button for Software, Chart 15.
Our software business, at $3.8 billion, was up 8% year-to-year at constant
currency.
o Middleware, the majority of our software revenue at more than 80% of
the total, grew 10%.
o Operating system revenues declined 2%.
This was another excellent quarter for our software business, in a difficult
economy, with broad-based market share gains at the expense of our competitors.
Strong momentum in middleware drove our growth. On a full-year basis, middleware
was 11 billion of our $13 billion software business.
Data management, our database, tools, business intelligence and content
management business, grew 48% this quarter.
o DB2 database grew 13% in head-to-head growth against our
competition,
o And database tools were up 62%.
o Informix also contributed to our growth, and the acquisition
is exceeding our expectations. In the 4th quarter alone,
10,000 Informix customers recommitted to IBM, including Sears,
Wal-Mart, MBNA and Motorola.
WebSphere, our e-infrastructure middleware, grew 43% this quarter.
o This was significantly faster than any of the competition.
o Giga estimated that, with our share gains in 2001, WebSphere
is in a dead heat with BEA for the industry lead.
o We are winning market share through head-to-head benchmarks.
o 50,000 paying customers; 600,000 active developers; 9,000
applications; and 7,000 certified solution providers are
driving this tremendous success.
o And our technology leadership will continue to advance with
the acquisition of CrossWorlds that was successfully completed
this month.
o Although 4th-quarter revenue was down year-to-year in our Tivoli and Lotus
businesses, both units had strong growth sequentially. And we are seeing
benefits of our restructuring, with improved profitability in both units.
The strong sequential growth in these units was driven by our
regenerated product portfolio.
In Tivoli:
o Security software revenue doubled sequentially.
o And storage management software revenue grew 60% sequentially.
In Lotus, we are leveraging an 85-million-seat Notes base to fuel growth
in next generation collaboration.
o Advanced collaboration software, including Sametime and Quickplace,
nearly doubled sequentially.
o And in eLearning, IBM delivered distance learning solutions to twice
the number of customers as the nearest competitor.
We also had success across platforms:
o Middleware software grew 5% year-to-year on UNIX and NT, while many
of our competitors experienced flat or declining revenues.
o Server consolidations for total cost of ownership savings, and our
tools business, continue to be growth drivers on host platforms.
Middleware on host platforms grew 16% this quarter.
We continue to aggressively go after the tools market, notably
data base and Application Development tools.
Finally, our Strategic ISV Alliance strategy continued to expand, driving more
than $1.5 billion of total IBM revenue in the 4th quarter, all at the expense of
our competitors.
o We signed four new alliances this quarter, with an increased focus
on emerging areas such as Life Sciences.
o We now have a total of 74 alliances signed to date.
We are taking tremendous momentum in our software business into 2002, driven by:
o Best-of-breed technology,
o Our ability to deliver integrated e-business solutions across
platforms,
o Share gains, and
o A 10,000-person dedicated software sales force, 56,000 business
partners, and a Strategic Alliance Program that IDC calls an
industry-leading best practice.
Now, if you'll hit the NEXT button, let me summarize my remarks.
For nearly all of our competitors, 2001 was a difficult year.
For IBM, it was a good year.
Yes, the stock performed well. But what's most important are the reasons
behind this performance.
What became more evident in 2001 was the financial strength and
competitiveness of our business model, including these three key elements:
o First, with the irrational exuberance associated with the dot-com
phenomenon behind us, customers are really starting to expect more
of their IT vendors.
They want real integrated business solutions. And it is
important to recognize that, when the economy turns, customers
are not going to return to that roll-your-own-IT era.
Building integrated solutions is a unique core strength for
IBM.
Many of our competitors are trying to find ways to emulate our
capabilities, but it is not something that can be simply
acquired. It takes years of investment to build this
capability.
o Second, we've gained share in key business segments throughout 2001.
We now offer better products and services because we exploit both
our industry-leading technology and the knowledge that comes from
our multi-platform integration experience.
o And the third point that's become more evident is that having a
financial core of annuity-like revenue and profit streams gives us
more than just
stable results. Its associated real cash flow also enables us to
continue investing in our growth businesses, further building our
lead, while our more market-sensitive competitors must cut
investments and overhaul their business models.
Each of these elements is going to serve us very well in 2002.
o The first half of this year, at a minimum, doesn't appear to have a
much different economic look to it than what we've just come
through.
So our business model, with its large element of annuity-like
profit, is going to retain its advantage.
o And last week, we announced that for the ninth year in a row, IBM
was the top producer of patents, far exceeding any of our
competitors.
Using this intellectual property, combined with our ability to
build integrated e-business solutions, we expect to gain more
share in 2002.
o And most important of all, when the economy picks up, customers will
reaccelerate their IT investments in the tough work of building
resilient infrastructures and real e-business solutions.
Our study of 33,000 companies showed that their CEOs and CIOs
are going to want integration, not just pieceparts.
2002 is going to be another demanding year, and a tough one to forecast.
Strategists and security analysts are quite undecided about what to expect
of earnings growth for the market as a whole, and for the technology
sector in particular.
But I said in my opening remarks that we think the consensus for IBM's
earnings per share is reasonable, despite the challenging environment.
That view rests on three fundamentals:
o As we start the year, we've already got about half of our
earnings under contract.
o And we expect that improving our cost structure in our
technology group and our PC division can make significant
contributions to growing earnings.
o Finally, we expect to gain share in key segments like
Software, Services, Storage, and Servers, just as we did in
2001.
There's a notion out there that history will repeat itself, that high-beta
stocks may come back when the economy turns. But there will be no telecoms
or dot-coms with open checkbooks waiting for them, just traditional
companies working hard to improve their competitiveness, our kind of
customers.
So 2002 will be another good year to have:
o A strong business model
o Competitive products and services that can gain share, and
o A strong balance sheet and cash flow.
IBM's strategy, our focus and our value proposition are more relevant
today than ever.
Now Hervey and I will take your questions.
Thanks, John.
Now, if you'll all go to the next chart, you'll find an index of all our slides
that may be helpful during the Q&A.
Before I turn the call over to the operator to give you polling instructions,
let me request that you refrain from multi-part questions, to give others some
time. As always, we are on a tight schedule.
OK, Mandy -- let's get started.
-1-
================================================================================
IBM 4Q 2001
EARNINGS PRESENTATION
JANUARY 2002
-2-
================================================================================
Certain comments made in this presentation may be characterized as forward
looking under the Private Securities Litigation Reform Act of 1995.
Those statements involve a number of factors that could cause actual results to
differ materially.
Additional information concerning these factors is contained in the Company's
filing with the SEC. Copies are available from the SEC, from the IBM web site,
or from IBM Investor Relations.
-3-
[LOGO] IBM
-4-
IBM 4Q 2001 RESULTS
===================
B/(W) B/(W)
($B) 4Q01 Yr/Yr FY01 Yr/Yr
---- ----- ---- -----
======================= =====================
Revenue - as reported 22.8 (11%) 85.9 (3%)
@cc (8%) 1%
======================= =====================
GP% 38.3% 1.0 pts 37.0% 0.7 pts
E/R% 23.9% (1.4 pts) 24.3% (1.1 pts)
Pre-tax Income 3.3 (13%) 11.0 (5%)
Pre-tax Income Margin 14.5% (0.3 pts) 12.8% (0.2 pts)
======================= =====================
Tax Rate% 29.3% 0.2 pts 29.5% 0.3 pts
Net Income 2.3 (13%) 7.7 (5%)
Net Income Margin 10.2% (0.2 pts) 9.0% (0.2 pts)
======================= =====================
Average Shares - Diluted (M) 1758.0 1.8% 1771.2 2.3%
EPS - Diluted $1.33 (10%) $4.35 (2%)
======================= =====================
-5-
IBM 4Q 2001 GEOGRAPHIC REVENUE
==============================
B/(W) Yr/Yr B/(W) Yr/Yr % of
--------------- --------------- Rev
($B) 4Q01 Rptd @CC FY01 Rptd @CC FY01
---- ---- --- ---- ---- --- ----
========================== ============================= =======
Americas 9.8 (9%) (8%) 37.4 (3%) (2%) 44%
Europe/ME/A 6.9 (6%) (6%) 24.0 (1%) 3% 28%
Asia Pacific 4.5 (10%) (1%) 17.2 (2%) 8% 20%
OEM 1.6 (34%) (33%) 7.2 (7%) (6%) 8%
========================== ============================= =======
========================== ============================= =======
IBM 22.8 (11%) (8%) 85.9* (3%) 1% 100%
========================== ============================= =======
* Rounding
-6-
IBM 4Q 2001 REVENUE
===================
B/(W) Yr/Yr B/(W) Yr/Yr % of
--------------- --------------- Rev
($B) 4Q01 Rptd @CC FY01 Rptd @CC FY01
---- ---- --- ---- ---- --- ----
========================== ============================= =======
Global Services 9.1 (1%) 1% 35.0 5% 10% 41%
Hardware 8.7 (24%) (21%) 33.4 (12%) (8%) 39%
Software 3.8 6% 8% 12.9 3% 7% 15%
Global Financing 0.9 (5%) (4%) 3.4 (1%) 1% 4%
Enterprise Inv. / Other 0.3 (20%) (18%) 1.2 (18%) (14%) 1%
========================== ============================= =======
========================== ============================= =======
IBM 22.8 (11%) (8%) 85.9 (3%) 1% 100%
========================== ============================= =======
-7-
IBM 4Q 2001 GROSS PROFIT MARGIN
===============================
B/(W) B/(W)
4Q01 Yr/Yr FY01 Yr/Yr
---- ----- ---- -----
====================== ======================
Global Services 28.2% 1.2 pts 27.5% 0.8 pts
Hardware 26.3% (4.1 pts) 27.7% (0.7 pts)
Software 85.2% 1.8 pts 82.5% 0.6 pts
Global Financing 55.4% 12.5 pts 50.6% 7.3 pts
Enterprise Inv./Other 45.8% 0.9 pts 45.0% (1.8 pts)
====================== ======================
====================== ======================
IBM 38.3% 1.0 pts 37.0% 0.7 pts
====================== ======================
-8-
IBM 4Q 2001 EXPENSE SUMMARY
===========================
($B) B/(W) B/(W)
4Q01 Yr/Yr FY01 Yr/Yr
----- --------- ----- ---------
Operating Expenses
===================== =====================
SG&A 4.2 4% 15.5 1%
R&D 1.3 13% 5.0 3%
===================== =====================
===================== =====================
Net Interest / Other Income -- NA 0.3 NA
===================== =====================
===================== =====================
Total Expense 5.4* 6% 20.8 (2%)
E/R% 23.9% (1.4 pts) 24.3% (1.1 pts)
===================== =====================
*Rounding
-9-
IBM CASH FLOW
=============
($B)
FY00 FY01
---- ----
Net Income 8.1 7.7
Depreciation/Amortization 5.0 4.8
Working Capital / Other (0.8) 0.4
========================================================================
Total Operating Sources 12.3 12.9
========================================================================
Capital Expenditures, Net (4.6) (5.1)
Other Operating Uses (0.5) (0.4)
========================================================================
Total Operating Uses (5.0) (5.5)
========================================================================
========================================================================
Free Cash Flow 7.3 7.4
========================================================================
Dividends (0.9) (1.0)
Acquisitions (0.3) (0.9)
Share Repurchase (6.7) (5.3)
Other 0.2 1.1
Global Financing, Net (0.8) 0.7
Core Debt, Net (0.9) 0.6
========================================================================
Net Cash Flow (2.1) 2.7
========================================================================
-10-
IBM BALANCE SHEET
=================
Dec Dec Dec
($B) 1999 2000 2001
---- ---- ----
======================================
Cash 5.8 3.7 6.4
Core Assets* 43.6 45.1 46.0
Global Fin. Assets* 38.1 39.6 35.9
---- ---- ----
Total Assets 87.5 88.3 88.3
======================================
======================================
Other Liabilities 38.6 39.1 37.5
Core Debt 1.6 1.1 1.6
Global Fin. Debt 26.8 27.5 25.5
---- ---- ----
Total Debt 28.4 28.6 27.2
---- ---- ----
Total Liabilities 67.0 67.7 64.7
======================================
======================================
Equity 20.5 20.6 23.6
======================================
======================================
Core Debt/Cap 9% 6% 7%
Global Fin. Leverage 5.5 6.6 6.8
======================================
*Excluding Cash
-11-
GLOBAL SERVICES
===============
Revenue $9.1B, +1% @CC
============================= =========================
Services +1% Signings $ 15B
Maintenance +2% Backlog $102B
============================= =========================
o Strong services business model
> Outsourcing and maintenance provide annuity stream
> Managing margins well
> Full year Services growth of 11%
> Healthy 4Q signings, backlog, and pipeline going into 2002
o Outsourcing and eSourcing up 6%
> $1 Billion hostng business in 2001
o Integrated Technology Services up 4%
> Server consolidations and Business Continuity Services up
o Business Innovation Services declined 6%
-12-
eSERVERS AND STORAGE
====================
Revenue $4.1B, -11% @CC
Gaining share despite opportunity declines
o eServers:
> zSeries:
-- Revenue growth despite tough compare
-- Five quarters of growth
-- MIPS +12%
> pSeries:
-- Regatta sold out
-- Low-end and Midrange weakness
> iSeries:
-- New workload gaining momentum
o Storage
> Total disk, Shark, and tape - yr/yr revenue growth
> Margin improvement in tough environment
> Strong profit growth
-13-
PERSONAL AND PRINTING SYSTEMS
=============================
Revenue $2.9B, -31% @CC
4Q01 revenue up 4% qtr/qtr
o PC environment remains challenging
o Cost & Expense challenges gaining traction
> Increasing PC Division direct channel participation
-- 4Q01 worldwide revenue was 44% direct
-- 4Q01 U.S. revenue was 66% direct
-- 1Q02 worldwide target is 50% direct
> Desktop manufacturing outsourcing
-14-
TECHNOLOGY
==========
Revenue $1.6B, -33% @CC
o OEM Microelectronics
> +3% qtr/qtr, consistent with industry
> Customer inventory down $50M
o OEM Storage
> Revenue down yr/yr but up sequentially
-- Gained unit share in mobile and desktop
> New drives in volume shipment 1Q02
-- Discovery II server
-- Cascade mobile
-- Vancouver desktop
-15-
SOFTWARE
========
Revenue $3.8B, +8% @CC
--------------------------------------------------------------------------------
4Q01 Revenue Dynamics
[BAR GRAPH OMITTED]
[The following data was depicted as a bar graph in the printed material.]
Operating Middleware
Systems -2% yr/yr --------------> UNIX/NT +5% yr/yr
Middleware +10% yr/yr --------------> Host +16% yr/yr
--------------------------------------------------------------------------------
o Strong momentum driven by middleware
o DB2 outperformed the industry with 13% revenue growth
o WebSphere leadership continued with 43% growth
o Three consecutive quarters of sequential improvement at Tivoli
o Lotus leadership continues in web collaboration and eLearning
o Leveraging 10,000 strong sales force; 56,000 business partners, and
74 ISV alliances
-16-
[LOGO] IBM
CURRENCY: YEAR-TO-YEAR COMPARISON
--------------------------------------------------------------------------------
QUARTERLY AVERAGES PER US$
@ 1/16 Spot
1/16 -----------------------
3Q01 4Q01 Spot 1Q02 2Q02
---------- ---------- ---------- ---------- ----------
Euro 1.12 1.12 1.14
Yr/Yr -2% 3% -5% 1%
Pound 0.70 0.69 0.70
Yr/Yr -3% -0% -2% 1%
Yen 121 124 131
Yr/Yr -13% -13% -11% -7%
--------------------------------------------------------------------------------
Negative IBM 3 pts 1 pt
Rev. Impact
Negative Yr/Yr growth signifies a translation hurt