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: July 09, 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 company announced on June 4, 2002, the decision to sell its disk
drive operations to Hitachi, Ltd. which under generally accepted accounting
principles will be accounted for as a discontinued operation.
The financial results from prior periods will be presented to conform
with this accounting treatment. The company is publishing quarterly
consolidated financial earnings results for 2001 and the first quarter of
2002 in order to facilitate an analysis by users of the company's financial
statements under this format. The financial results reported as discontinued
operations include the external original equipment manufacturer, (OEM)
hard disk drive business and charges related to hard disk drives used in the
company's e-server and e-storage products that were recorded in the
Technology segment. The discontinued operations results do not reflect hard
disk drive shipments to IBM internal customers. These results are included in
Exhibit I of this Form 8-K. In addition, segment pre-tax income results from
continuing operations are provided for the same periods in Exhibit II of this
Form 8-K. Exhibit III of this Form 8-K is the registrant's press release
dated June 4, 2002, regarding a definitive agreement between Hitachi and IBM
on the transfer of their hard disk drive operations to a new standalone
company under Hitachi ownership.
Also, on June 4, 2002, the company announced that it would record pre-tax
charges of approximately $2.0B to $2.5B, primarily in the second quarter,
associated with the company's exit from the hard disk drive business, write-offs
of assets in the Microelectronics business, and charges related to productivity
initiatives, principally workforce reductions. IBM will describe these actions
in additional detail when the company announces second quarter results on July
17, 2002. Exhibit IV of this Form 8-K is the registrant's press release dated
June 4, 2002, regarding actions to strengthen the company's strategic and
competitive position.
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: July 09, 2002
By: /s/ Robert F. Woods
------------------------------
(Robert F. Woods)
Vice President and Controller
Exhibit I
INTERNATIONAL BUSINESS MACHINES CORPORATION
COMPARATIVE FINANCIAL RESULTS
CONTINUING/DISCONTINUED OPERATONS FORMAT
2001
(Unaudited; Dollars in millions except per share amounts)
First Quarter Second Quarter Third Quarter Fourth Quarter Full Year
------------- -------------- ------------- -------------- ---------
REVENUE
Global Services $8,471 $8,742 $8,682 $9,061 $34,956
Gross profit margin 25.5% 27.6% 28.4% 28.2% 27.5%
Hardware 7,812 7,918 6,834 8,029 30,593
Gross profit margin 32.1% 32.1% 26.9% 30.9% 30.6%
Software 2,918 3,036 3,201 3,784 12,939
Gross profit margin 80.2% 82.4% 81.5% 85.2% 82.5%
Global Financing 832 845 822 927 3,426
Gross profit margin 47.3% 48.2% 51.0% 55.4% 50.6%
Enterprise Investments/Other 276 293 244 340 1,153
Gross profit margin 49.5% 43.3% 40.8% 45.8% 45.0%
TOTAL REVENUE 20,309 20,834 19,783 22,141 83,067
GROSS PROFIT 7,535 7,987 7,434 8,933 31,889
Gross profit margin 37.1% 38.3% 37.6% 40.3% 38.4%
EXPENSE AND OTHER INCOME
S,G&A 4,083 4,182 4,085 4,698 17,048
Expense to revenue 20.1% 20.1% 20.6% 21.2% 20.5%
R,D&E 1,209 1,284 1,252 1,241 4,986
Expense to revenue 6.0% 6.2% 6.3% 5.6% 6.0%
Intellectual property and
custom development income (265) (354) (393) (464) (1,476)
Other (income) & expense (69) (124) 29 (189) (353)
Interest expense 70 58 53 53 234
------ ------ ------ ------ ------
TOTAL EXPENSE AND OTHER INCOME 5,028 5,046 5,026 5,339 20,439
Expense to revenue 24.8% 24.2% 25.4% 24.1% 24.6%
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 2,507 2,941 2,408 3,594 11,450
Pre-tax margin 12.3% 14.1% 12.2% 16.2% 13.8%
Provision for income taxes 730 850 695 1,029 3,304
Effective tax rate 29.1% 28.9% 28.9% 28.6% 28.9%
NET INCOME FROM CONTINUING
OPERATIONS 1,777 2,091 1,713 2,565 8,146
Net margin 8.8% 10.0% 8.7% 11.6% 9.8%
Preferred stock dividends 5 5 0 0 10
NET INCOME FROM CONTINUING
OPERATIONS APPLICABLE TO
COMMON SHAREHOLDERS $1,772 $2,086 $1,713 $2,565 $8,136
====== ====== ====== ====== ======
DISCONTINUED OPERATIONS
(NET OF TAX) (27) (46) (118) (232) (423)
------ ------ ------ ------ ------
NET INCOME AFTER
DISCONTINUED OPERATIONS $1,745 $2,040 $1,595 $2,333 $7,713
====== ====== ====== ====== ======
EARNINGS PER SHARE
------------------
COMMON STOCK FROM
CONTINUING OPERATIONS:
- ASSUMING DILUTION $1.00 $1.17 $0.97 $1.46 $4.59*
- BASIC $1.02 $1.20 $0.99 $1.49 $4.69*
COMMON STOCK FROM DISCONTINUED
OPERATIONS:
- ASSUMING DILUTION ($0.02) ($0.03) ($0.07) ($0.13) ($0.24*)
- BASIC ($0.02) ($0.03) ($0.07) ($0.14) ($0.24*)
COMMON STOCK FROM TOTAL
OPERATIONS:
- ASSUMING DILUTION $0.98 $1.15** $0.90 $1.33 $4.35*
- BASIC $1.00 $1.17 $0.92 $1.35 $4.45*
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING (M's)
DILUTED 1,781.2 1,777.7 1,767.9 1,758.0 1,771.2
BASIC 1,740.9 1,738.2 1,731.8 1,722.4 1,733.3
* Earnings per share (EPS) in each quarter is computed using the
weighted-average number of shares outstanding during the quarter while EPS for
the full year is computed using the weighted-average number of shares
outstanding during the year. Thus, the sum of the quarters' EPS may not equal
the full-year EPS.
** Does not total due to rounding.
INTERNATIONAL BUSINESS MACHINES CORPORATION
COMPARATIVE FINANCIAL RESULTS
CONTINUING/DISCONTINUED OPERATIONS FORMAT
2002
(Unaudited; Dollars in millions except per share amounts)
First Quarter
-------------
REVENUE
Global Services $8,229
Gross profit margin 26.0%
Hardware 5,884
Gross profit margin 24.5%
Software 2,897
Gross profit margin 81.1%
Global Financing 783
Gross profit margin 56.6%
Enterprise Investments/Other 237
Gross profit margin 56.2%
TOTAL REVENUE 18,030
GROSS PROFIT 6,500
Gross profit margin 36.1%
EXPENSE AND OTHER INCOME
S,G&A 4,023
Expense to revenue 22.3%
R,D&E 1,135
Expense to revenue 6.3%
Intellectual property
and custom development income (296)
Other (income) & expense (205)
Interest expense 30
------
TOTAL EXPENSE AND OTHER INCOME 4,687
Expense to revenue 26.0%
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 1,813
Pre-tax margin 10.1%
Provision for income taxes 529
Effective tax rate 29.2%
NET INCOME FROM CONTINUING
OPERATIONS 1,284
Net margin 7.1%
Preferred stock dividends 0
NET INCOME FROM CONTINUING
OPERATIONS APPLICABLE TO
COMMON SHAREHOLDERS $1,284
======
DISCONTINUED OPERATIONS
(NET OF TAX) (92)
------
NET INCOME AFTER
DISCONTINUED OPERATIONS $1,192
======
EARNINGS PER SHARE
------------------
COMMON STOCK FROM CONTINUING
OPERATIONS:
- ASSUMING DILUTION $0.73
- BASIC $0.75
COMMON STOCK FROM DISCONTINUED
OPERATIONS:
- ASSUMING DILUTION ($0.05)
- BASIC ($0.05)
COMMON STOCK FROM TOTAL
OPERATIONS:
- ASSUMING DILUTION $0.68
- BASIC $0.69*
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING (M's)
DILUTED 1,753.0
BASIC 1,718.4
* Does not total due to rounding.
Exhibit II
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
CONTINUING OPERATIONS FORMAT
2001
(UNAUDITED)
FIRST QUARTER
Pre-tax
Income
(Dollars in millions) From Pre-Tax
************ Revenue ************ Continuing Income
External Internal Total Operations Margin
SEGMENTS
Global Services $ 8,471 $589 $9,060 $1,068 11.8%
Enterprise Systems 3,136 167 3,303 391 11.8%
Personal and Printing Systems 3,176 18 3,194 (58) (1.8%)
Technology * 1,574 339 1,913 137 7.2%
Software 2,918 214 3,132 586 18.7%
Global Financing 834 226 1,060 273 25.8%
Enterprise Investments 253 1 254 (140) (55.1%)
TOTAL SEGMENTS 20,362 1,554 21,916 2,257 10.3%
Eliminations / Other* (53) (1,554) (1,607) 250
TOTAL IBM $20,309 $0 $20,309 $2,507 12.3%
* Reclassified to conform with 2002 presentation.
2001
(UNAUDITED)
SECOND QUARTER
Pre-tax
Income
(Dollars in millions) From Pre-Tax
************ Revenue ************ Continuing Income
External Internal Total Operations Margin
Segments
Global Services $ 8,742 $650 $9,392 $1,307 13.9%
Enterprise Systems 3,477 205 3,682 526 14.3%
Personal and Printing Systems 3,067 14 3,081 (8) (0.3%)
Technology * 1,380 388 1,768 102 5.8%
Software 3,036 236 3,272 711 21.7%
Global Financing 838 217 1,055 291 27.6%
Enterprise Investments 287 0 287 (27) (9.4%)
TOTAL SEGMENTS 20,827 1,710 22,537 2,902 12.9%
Eliminations / Other* 7 (1,710) (1,703) 39
TOTAL IBM $20,834 $0 $20,834 $2,941 14.1%
* Reclassified to conform with 2002 presentation.
2001
(UNAUDITED)
THIRD QUARTER
Pre-tax
Income
(Dollars in millions) From Pre-Tax
************ Revenue ************ Continuing Income
External Internal Total Operations Margin
Segments
Global Services $ 8,682 $ 684 $ 9,366 $1,373 14.7%
Enterprise Systems 3,056 175 3,231 194 6.0%
Personal and Printing Systems 2,829 18 2,847 (70) (2.5)%
Technology * 1,006 416 1,422 (78) (5.5%)
Software 3,201 236 3,437 704 20.5%
Global Financing 814 204 1,018 314 30.8%
Enterprise Investments 242 1 243 (76) (31.3%)
TOTAL SEGMENTS 19,830 1,734 21,564 2,361 10.9%
Eliminations / Other* (47) (1,734) (1,781) 47
TOTAL IBM $19,783 $0 $19,783 $2,408 12.2%
* Reclassified to conform with 2002 presentation.
2001
(UNAUDITED)
FOURTH QUARTER
Pre-tax
Income
(Dollars in millions) From Pre-Tax
************ Revenue ************ Continuing Income
External Internal Total Operations Margin
Segments
Global Services $ 9,061 $ 724 $ 9,785 $1,413 14.4%
Enterprise Systems 4,074 163 4,237 719 17.0%
Personal and Printing Systems 2,910 23 2,933 (17) (0.6%)
Technology * 1,189 308 1,497 16 1.1%
Software 3,784 295 4,079 1,167 28.6%
Global Financing 921 189 1,110 265 23.9%
Enterprise Investments 336 2 338 (74) (21.9%)
TOTAL SEGMENTS 22,275 1,704 23,979 3,489 14.6%
Eliminations / Other* (134) (1,704) (1,838) 105
TOTAL IBM $22,141 $0 $22,141 $3,594 16.2%
* Reclassified to conform with 2002 presentation.
2001
(UNAUDITED)
Full Year
Pre-tax
Income
(Dollars in millions) From Pre-Tax
************ Revenue ************ Continuing Income
External Internal Total Operations Margin
Segments
Global Services $34,956 $2,647 $37,603 $5,161 13.7%
Enterprise Systems 13,743 710 14,453 1,830 12.7%
Personal and Printing Systems 11,982 73 12,055 (153) (1.3%)
Technology * 5,149 1,451 6,600 177 2.7%
Software 12,939 981 13,920 3,168 22.8%
Global Financing 3,407 836 4,243 1,143 26.9%
Enterprise Investments 1,118 4 1,122 (317) (28.3%)
TOTAL SEGMENTS 83,294 6,702 89,996 11,009 12.2%
Eliminations / Other* (227) (6,702) (6,929) 441
TOTAL IBM $83,067 $0 $83,067 $11,450 13.8%
* Reclassified to conform with 2002 presentation.
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA CONTINUING OPERATIONS FORMAT
2002
(UNAUDITED)
FIRST QUARTER
Pre-tax
Income
(Dollars in millions) From Pre-Tax
************ Revenue ************ Continuing Income
External Internal Total Operations Margin
SEGMENTS
Global Services $ 8,229 $ 640 $ 8,869 $1,073 12.1%
Enterprise Systems 2,484 166 2,650 177 6.7%
Personal and Printing Systems 2,511 13 2,524 65 2.6%
Technology* 930 236 1,166 (139) (11.9%)
Software 2,897 227 3,124 560 17.9%
Global Financing 768 186 954 222 23.3%
Enterprise Investments 231 1 232 (53) (22.8%)
TOTAL SEGMENTS 18,050 1,469 19,519 1,905 9.8%
Eliminations / Other* (20) (1,469) (1,489) (92)
TOTAL IBM $18,030 $0 $18,030 $1,813 10.1%
* Reclassified to conform with 2002 presentation.
Exhibit III
Contact: Yasuo Hirano
Hitachi, Ltd.
+81-3-3258-2057
yasuo_hirano@hdq.hitachi.co.jp
Scott Brooks
IBM Corporation
914-499-6734
srbrooks@us.ibm.com
HITACHI AND IBM REACH DEFINITIVE AGREEMENT
ON HARD DISK DRIVE OPERATIONS
TOKYO, Japan and SAN JOSE, Calif. -- June 4, 2002 -- Hitachi, Ltd. (NYSE: HIT,
TSE: 6501) and IBM today announced that they have reached a definitive agreement
to transfer their hard disk drive (HDD) operations to a new standalone company
under majority Hitachi ownership. These plans were originally announced in April
as part of a larger storage relationship between the two companies.
Hitachi has agreed to purchase the majority of IBM's HDD-related assets for
$2.05 billion, which includes the transfer of IBM's HDD-related intellectual
property portfolio to the new organization. Hitachi will initially own 70
percent of this new company and will make a series of fixed payments to IBM
before assuming full ownership after three years.
The new company will be based in San Jose, California, and managed by an
independent team comprising executives from Hitachi and IBM's existing HDD
operations. The chief executive officer will be Dr. Jun Naruse, Corporate
Managing Director of Hitachi, Ltd., formerly CEO of Hitachi Data Systems, and
the chief operating officer will be Dr. Douglas Grose, currently general manager
of IBM's Storage Technology Division. Hitachi will select the new company's
board of directors, and IBM will not be involved in its operations.
The new organization will bring together approximately 24,000 employees, about
18,000 from IBM and 6,000 from Hitachi, with major manufacturing operations at
11 locations around the world. Certain IBM HDD operations are not included in
the deal.
Hitachi estimates the new company may deliver approximately $5 billion in sales
in fiscal year 2003, and will target annual sales of $7 billion by fiscal year
2006. IBM and Hitachi have each agreed to multi-year HDD supply commitments from
the new company.
-more-
HITACHI AND IBM REACH DEFINITIVE AGREEMENT/PAGE 2
Pending the completion of applicable regulatory processes, the deal is expected
to close before year-end.
"The purchase of IBM's HDD business brings us the valuable business assets
required for long-term success in this highly competitive market," said Masaaki
Hayashi, Senior Vice President and Director, Hitachi, Ltd. "By combining HDD
research, development, manufacturing, marketing and sales into an independently
operating company, we are creating a new industry leader fully focused on the
$20 billion disk-drive market. This new company is uniquely positioned for
success by its broad customer portfolio, its unparalleled technological
capabilities and its strong position in key growth markets, including
storage-intensive consumer electronics."
"Customers will benefit from the increased efficiencies of the new company and
its ability to quickly bring advanced technologies and products to market," said
John E. Kelly III, senior vice president and general manager of IBM's Technology
Group. "The singular focus on the HDD business will provide employees with the
dedicated resources necessary to fully apply their industry-leading expertise to
developing new HDD technologies and market opportunities."
In addition, IBM and Hitachi are proceeding with separate negotiations related
to a planned multi-year alliance to research and develop new open
standards-based technologies specific to next-generation storage networks,
systems and solutions. The companies have created a process to review joint
projects designed to improve interoperability, reduce complexity and improve
cost of ownership for storage systems customers. Additional information on this
alliance will be announced when negotiations are finalized.
# # #
-Cautionary Statement-
Statements in this document contain forward-looking information which reflect
Hitachi's current views with respect to certain future events and financial
performance. Actual results may differ materially from this forecast. Further,
this forward-looking information is based upon assumptions of future events
which may not prove to be accurate.
Factors that could cause actual results to differ materially from the forecast
include, but are not limited to: rapid technological change; uncertainty as to
the new company's ability to continue to develop products and to market products
that incorporate new technology on a timely and cost-effective basis and achieve
market acceptance; fluctuations in product demand and industry capacity;
increasing commoditization of information technology products, and intensifying
price competition in the market for such products; fluctuations in rates of
exchange for the U.S. dollar and other currencies in which the new company makes
significant sales or in which the new company's assets and liabilities are
denominated; uncertainty as to the new company's access to liquidity or
long-term financing, particularly in the context of restrictions on availability
of credit prevailing in U.S.; uncertainty as to the new company's ability to
implement measures to reduce the potential negative impact of fluctuations in
product demand and/or exchange rates; general economic conditions and the
regulatory and trade environment of the new company's major markets, continued
stagnation or deterioration of the Japanese or other East Asian economies, or
direct or indirect restriction by other nations of imports; uncertainty as to
the new company's access to, or protection for, certain intellectual property
rights; the new company's dependence on alliances with other corporations in
designing or developing certain products; and the market prices of equity
securities in Japan, declines in which may result in write-downs of equity
securities Hitachi holds.
# # #
HITACHI AND IBM REACH DEFINITIVE AGREEMENT/PAGE 3
ADDITIONAL HITACHI PRESS CONTACTS:
Japan: Tsuyoshi Miyata, Hirotaka Ohno
Hitachi, Ltd.
Tel: +81-3-3258-2057
tsuyoshi_miyata@hdq.hitachi.co.jp
hirotaka_ohn@hdq.hitachi.co.jp
Singapore: Yuji Hoshino
Hitachi Asia Ltd.
Tel: +65-231-2522
yhoshino@has.hitachi.com.sg
US: Masahiro Takahashi
Hitachi America, Ltd.
Tel: +1-650-244-7902
masahiro.takahashi@hal.hitachi.com
UK: Kantaro Tanii
Hitachi Europe Ltd.
Tel: +44-1628-585379
Kantaro.tanii@hitachi-eu.com
Exhibit IV
Contact: Bill Hughes
(914) 499-6565
bhughes@us.ibm.com
IBM ANNOUNCES ACTIONS TO STRENGTHEN STRATEGIC
AND COMPETITIVE POSITION; ANTICIPATES SECOND-QUARTER CHARGE
ARMONK, N.Y., June 4, 2002 . . . IBM today announced a series of actions to
improve further the company's competitive and strategic position in the changing
information technology industry.
As announced yesterday, Hitachi Ltd., has agreed to purchase IBM's disk
drive operations and form a new company majority-owned by Hitachi. In addition,
IBM and Hitachi are proceeding with separate negotiations related to a planned
multi-year alliance to research and develop open technologies for
next-generation storage networks, systems and solutions. The companies have
created a process to review joint projects designed to improve interoperability,
reduce complexity and improve cost of ownership for storage systems customers.
IBM also is realigning its Microelectronics Division to increase
operational efficiencies and capitalize on emerging growth opportunities. As
part of this realignment, the Division will increase its use of leading-edge
copper technology and close older aluminum technology capacity. The Division
will increase its focus on custom-chip design and manufacturing, and advanced
foundry, while adding new technology design services, which were announced
today.
Further, IBM is rebalancing skills and reducing its workforce in other
business units and headquarters staffs. These actions will enhance IBM's
competitiveness by improving productivity and operational efficiencies over the
long term. The majority of the employees affected by these actions have been
notified.
- more -
- 2 -
As a result of all of these actions, IBM will record pre-tax charges of
approximately $2.0 billion to $2.5 billion, primarily in the second quarter.
These include charges associated with the company's exit from the hard disk
drive business, write-offs of assets in the Microelectronics business, and
charges related to productivity initiatives, principally workforce reduction.
"These actions will not only substantially lower IBM's annual operating
expenses, more important, they strengthen the company's strategic position in
the near and long term," said John R. Joyce, senior vice president and chief
financial officer.
"We are moving quickly to occupy the strategic areas in the technology and
storage marketplace," added Nick Donofrio, senior vice president, Technology and
Manufacturing. "At our core, we are a technology company, and we will continue
to focus on leading-edge products, such as our copper technology and move away
from maturing technologies, and align our operations to meet that shift in
demand. The actions we are taking now will better position IBM in areas where
there is both long-term growth and profitability."
IBM will describe today's actions in additional detail when the company
announces second-quarter results in mid-July.
# # #