IBM 1998 Annual Report Download - page 60

Fourth Quarter
For the quarter ended December 31, 1998, the company had
revenue of $25.1 billion, an increase of 5.9 percent (up about 5
percent in constant currency) over the same period of 1997.
Net income in the fourth quarter was $2.3 billion ($2.47 per
common share—assuming dilution), compared with net
income of $2.1 billion ($2.11 per common share—assuming
dilution) in the fourth quarter of 1997.
Fourth quarter revenue from the United States was $10.3 billion,
an increase of 8.0 percent from the same period of 1997.
Revenue from Europe /Middle East /Africa was $8.7 billion, up
12.5 percent. Revenue from Canada was $996 million, up 8.3
percent. Asia Pacific revenue fell 3.4 percent to $4.2 billion, while
revenue from Latin America fell 21.7 percent to $929 million.
Excluding the effects of currency translation, Europe /Middle
East /Africa grew 9 percent, Canada increased 12 percent, Asia
Pacific declined 6 percent and Latin America declined 19 per-
cent versus the fourth quarter of 1997.
The Hardware segments revenue was essentially flat with the
year-ago period at $11.4 billion. Declines were driven by the
Server segment, due to lower S/390, AS/400 and RS/6000 rev-
enue in 1998 versus 1997. Shipments of S/390 computing power
increased by approximately 60 percent, as measured in MIPS,
though S/390 revenue declined. These decreases were offset
by higher revenue from the Technology and Personal Systems
segments. The Technology segment increases were driven by
higher HDD revenue. The Personal Systems segment increases
were due to higher commercial personal computer revenue,
partially offset by lower consumer personal computer revenue.
Global Services segment revenue grew 14.1 percent versus
the fourth quarter of 1997. Global Services revenue grew by
more than $1 billion compared to last year’s fourth quarter,
and the company’s services unit signed more than $9 billion
in new services contracts in the quarter. Maintenance offer-
ings revenue continued to decline when compared to the
fourth quarter of 1997.
Software segment revenue increased 9.1 percent versus the
fourth quarter of 1997. The increase was driven primarily
by strength in database, transaction processing and Tivoli
systems management products.
Global Financing segment revenue increased 2.5 percent ver-
sus the fourth quarter of 1997, and the Enterprise Investments
segment /Other revenue increased 5.6 percent compared with
1997’s fourth quarter.
The company’s overall gross profit margin in the fourth quar-
ter was 39.0 percent, compared to 40.1 percent in the year-
earlier period.
Total fourth-quarter 1998 expenses were essentially flat year
over year. The expense-to-revenue ratio in the fourth quarter
of 1998 was 25.9 percent compared to 27.4 percent in the
year-earlier period.
The company’s tax rate was 28.9 percent in the fourth quarter,
compared to 30.5 percent in the fourth quarter of 1997. The 1998
fourth quarter tax rate reflects the net effect of the company’s
transfer of certain intellectual property rights to several sub-
sidiaries and the related valuation allowance impacts. See
note Q, “Taxes,” on pages 77 and 78 for additional information.
The company spent approximately $1.6 billion on share repur-
chases in the fourth quarter. The average number of shares
outstanding in the fourth quarter of 1998 was 919.8 million,
compared to 964.8 million in the year-earlier period. The aver-
age number of shares outstanding for purposes of calculating
diluted earnings was 947.2 million in the fourth quarter of 1998
versus 990.7 million in the fourth quarter of 1997.
Financial Condition
The company continued to make significant investments dur-
ing 1998 to fund future growth and increase shareholder value,
expending $5.6 billion for research, development and engi-
neering, $4.8 billion for plant and other property, including
machines used in managed operations services offerings,
$1.7 billion for machines on operating leases with customers,
$0.7 billion for strategic acquisitions and $6.9 billion for the
repurchase of the company’s common shares. The company
had $5.8 billion in cash, cash equivalents and marketable
securities on hand at December 31, 1998.
The company has access to global funding sources. During
1998, the company issued debt in a variety of geographies to
a diverse set of investors. Significant funding was issued in the
United States, Japan and Europe. Funding was obtained
across the range of debt maturities, from short-term commer-
cial paper to long-term debt. More information about company
debt is provided in note K, “Debt,” on page 73.
In December 1993, the company entered into a $10 billion com-
mitted global credit facility to enhance the liquidity of funds.
This facility was amended in February 1997, and extended to
February 2002. As of December 31, 1998, $8.8 billion was
unused and available.
The company had an outstanding balance at December 31,
1998 and 1997, of $0.9 billion in assets under management
from the securitization of loans, leases and trade receivables.
For additional information see note J, “Sale and Securitization
of Receivables,” on page 73.
The major rating agencies have continued their review of the
company’s financial condition. In February 1998, Standard and
MANAGEMENT DISCUSSION International Business Machines Corporation and Subsidiary Companies
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