10-QPeriod: Q2 FY2004

INTERNATIONAL BUSINESS MACHINES CORP Quarterly Report for Q2 Ended Jun 30, 2004

Filed July 30, 2004For Securities:IBM

Summary

International Business Machines Corporation (IBM) reported solid financial results for the quarter and first half ended June 30, 2004. Revenue increased by 7.0% year-over-year for the quarter to $23.15 billion and by 8.9% for the first half to $45.40 billion. This growth was driven by strong demand, particularly in the Financial Services and Industrial sectors, and favorable currency translation. Net income from continuing operations saw a significant increase of 15.3% for the quarter, reaching $1.99 billion, and 15.4% for the first half, totaling $3.59 billion. This profitability improvement was supported by increased revenues, effective expense management, and a favorable tax rate. Earnings per share (EPS) also reflected this positive trend, with diluted EPS from continuing operations rising to $1.16 for the quarter and $2.09 for the first half. The company demonstrated strong operational cash flow and maintained a healthy balance sheet, with total assets decreasing slightly but equity increasing.

Key Highlights

  • 1Total revenue increased by 7.0% to $23.15 billion for the quarter and 8.9% to $45.40 billion for the first half of 2004 compared to the prior year periods.
  • 2Income from continuing operations grew by 15.3% to $1.99 billion for the quarter and 15.4% to $3.59 billion for the first half.
  • 3Diluted earnings per share from continuing operations rose to $1.16 for the quarter and $2.09 for the first half, representing significant year-over-year growth.
  • 4Global Services revenue increased by 6.5% for the quarter and 7.8% for the first half, demonstrating continued strength in this segment.
  • 5Hardware revenue saw robust growth, up 12.3% for the quarter and 14.0% for the first half, driven by strong performance in Systems and Technology Group, particularly zSeries and xSeries servers.
  • 6The company successfully renegotiated a new $10 billion, 5-year Credit Agreement, enhancing its liquidity and financial flexibility.
  • 7Goodwill increased by $766 million during the first six months of 2004, primarily due to acquisitions, with no goodwill impairment losses recorded.

Frequently Asked Questions

Revenue growth was primarily driven by stronger demand associated with the improving economy, continued market share gains for server products, and a favorable impact from currency translation. Specific sectors like Financial Services and Industrial showed strong performance.

Profitability improved significantly. Income from continuing operations increased by 15.3% for the quarter and 15.4% for the first half. This was supported by revenue growth, expense management, and a consistent effective tax rate of 30.0%.

Total assets decreased slightly by 4.7% to $99.58 billion by June 30, 2004, largely due to a decrease in financing receivables. Total liabilities decreased by 7.6% to $70.75 billion, primarily from reductions in accounts payable and taxes. Stockholders' equity increased by 3.5% to $28.83 billion.

IBM is involved in various legal matters, including a significant ERISA lawsuit concerning its pension plan where the company estimates potential remedies could be at least $6.5 billion, though IBM intends to appeal and believes it is likely to be successful. The company also noted an SEC investigation related to revenue recognition in 2000-2001 and a Wells Notice concerning a transaction with Dollar General Corporation. While these matters are ongoing, IBM believes any potential losses are not yet reasonably estimable or material based on current information.