ARMONK, N.Y.--October 16, 2002--IBM today announced third- quarter 2002 results from continuing operations of $.99 diluted earnings per common share compared with $.97 in the third quarter of 2001. Third-quarter income from continuing operations was $1.7 billion compared with $1.7 billion in the 2001 third quarter. Revenues were $19.8 billion, flat (down 2 percent at constant currency) compared with the third quarter of 2001. Samuel J. Palmisano, IBM president and chief executive officer, said: "We are encouraged by the solid results the IBM team produced this quarter. In this difficult economic environment, we delivered a good revenue performance and grew EPS. In addition, we gained share and momentum in key businesses. "Global Services, Storage and IBM eServers, particularly our pSeries UNIX server and Intel-based xSeries line, performed well, despite the economy. We believe both WebSphere and DB2 gained share in a difficult software market. Microelectronics increased revenue for the first time in many quarters and cut its losses substantially. "Our performance was the result of disciplined execution, backed with IBM's strong strategic position in areas becoming increasingly important in the information technology industry. Customers continue to value and invest in integrated solutions, deep industry expertise, comprehensive services capability, and open enterprise hardware and middleware. "We recognized early the fundamental changes now taking place in computing and did the hard work to prepare ourselves, including the acquisitions of PricewaterhouseCoopers Consulting and several software companies. As a result, we are well positioned for the future and believe we will continue to distance ourselves from the competition." From continuing operations in the third quarter, the Americas revenues were $9.0 billion, a decrease of 2 percent (flat at constant currency) from the 2001 period. Revenues from Europe/Middle East/Africa were $5.7 billion, up 1 percent (down 8 percent at constant currency). Asia-Pacific revenues grew 3 percent (2 percent at constant currency) to $4.3 billion. OEM revenues increased 1 percent (1 percent at constant currency) to $867 million compared with the third quarter of 2001. Revenues from Global Services, including maintenance, grew 2 percent (flat at constant currency) in the third quarter to $8.9 billion. Global Services revenues, excluding maintenance, increased 2 percent (flat at constant currency). IBM signed $9 billion in services contracts in the quarter. On October 1, IBM completed the acquisition of PwC Consulting and announced the new global business unit, Business Consulting Services. Hardware revenues from continuing operations decreased 1 percent (2 percent at constant currency) to $6.8 billion from the 2001 third quarter. Overall, sequential year-to-year revenue performance for IBM eServers and storage improved significantly in the quarter. Revenues from pSeries UNIX servers and xSeries Intel-based servers grew in the quarter, with xSeries having strong back-to-back quarterly results. Meanwhile, the iSeries had a difficult quarter. With a single-digit percentage decline in the quarter, revenues from IBM eServer zSeries mainframe were much improved year to year compared with the first-half 2002. Total deliveries of zSeries computing power as measured in MIPS (millions of instructions per second) increased 7 percent. Also in the third quarter, personal computer revenues declined year over year but at a slower pace. Revenues from Microelectronics increased from a year ago after a period of weakness in demand for semiconductor products. Software revenues decreased 3 percent (5 percent in constant currency) to $3.1 billion compared to the 2001 third quarter. Middleware products, which include WebSphere and DB2, declined 5 percent at constant currency in the third quarter. WebSphere, IBM's family of e-business middleware products, grew 27 percent from a year ago. IBM's leading database management software, DB2, grew 2 percent. Revenues from Lotus and Tivoli declined year over year, as did operating systems revenues. In the third quarter, the company made several acquisitions to complement the company's software infrastructure portfolio, improve time to market and gain market share. Global Financing revenues decreased 3 percent (4 percent at constant currency) in the third quarter to $795 million. Revenues from the Enterprise Investments/Other area, which includes industry-specific IT solutions, increased 5 percent (1 percent at constant currency) compared to the third quarter of 2001 to $257 million. The company's overall gross profit margin from continuing operations was 36.9 percent in the third quarter, compared to 37.6 percent in the year-ago quarter. Third-quarter expense and other income from continuing operations was $4.9 billion, 2 percent lower than the year-earlier period. Selling, general and administrative and research and development expenses improved 2 percent and 3 percent, respectively. Lower intellectual property and custom development income was offset partially by a benefit from other income and expense, and lower interest expense. IBM's improved expense performance benefited additionally from the company's continuing e-business transformation, productivity enhancements and focus on discretionary spending. IBM's effective tax rate from continuing operations in the third quarter was 29.5 percent compared with 28.9 percent in the third quarter of 2001. IBM spent approximately $600 million on share repurchases in the third quarter. The average number of basic common shares outstanding in the quarter was 1.69 billion compared with 1.73 billion shares in the same period of 2001. There were 1.69 billion basic common shares outstanding at September 30, 2002. Cash on the balance sheet was $5.2 billion at September 30, 2002. Debt, including global financing, totaled $25.7 billion, a decrease of $1.4 billion from year-end 2001. The core debt-to-capitalization ratio was 8 percent at the end of the third quarter, and global financing debt declined $1.4 billion from year-end 2001 to a total of $24.1 billion, resulting in a debt-to-equity ratio of 6.8 to 1. As previously announced in June, the company reached an agreement with Hitachi, Ltd. to sell its hard disk drive business, and, therefore, the results from continuing operations exclude the HDD business. The HDD business is presented separately as discontinued operations. For the third-quarter 2002, IBM reported a loss from discontinued operations of $381 million, or $.22 per diluted common share, including $.06 per diluted share, or $140 million pre-tax loss related to the HDD sale, compared with a loss from discontinued operations of $118 million, or $.07 per diluted share in the 2001 third quarter. For total operations, net income for the third quarter was $1.3 billion, or $.76 per diluted common share, compared with $1.6 billion in net income, or $.90 per diluted share in the third quarter of 2001. Total revenues of $20.3 billion, which includes $498 million of revenues from the HDD unit, declined 1 percent from the third quarter of 2001. Year-To-Date 2002 Results For the nine months ended September 30, 2002, income from continuing operations was $3.4 billion, or $1.97 per diluted common share, including $.64 per diluted share, or $1.6 billion in incremental pre- tax charges, associated with the realignment of the Microelectronics Division and productivity actions. In the prior-year period, income from continuing operations was $5.6 billion, or $3.14 per diluted share. Revenues from continuing operations totaled $57.5 billion, a decline of 6 percent (5 percent at constant currency) compared with the first nine months of 2001. For the first nine months of 2002, the loss from discontinued operations was $862 million, or $.50 per diluted common share, including $.23 per diluted share, or $573 million on a pre-tax basis for asset write-offs and the loss related to the HDD sale, compared with a loss from discontinued operations of $191 million, or $.11 per diluted share in the prior-year period. For total operations, net income for the first nine months of 2002 was $2.6 billion, or $1.47 per diluted common share, including $.87 per diluted share, or $2.2 billion in incremental pre-tax charges, associated with the realignment of the Microelectronics Division, the agreement to sell the HDD business, and productivity actions. In the prior-year period, net income was $5.4 billion, or $3.03 per diluted share. Total revenues of $58.9 billion, which includes $1.4 billion of revenues from the HDD unit, declined 7 percent from a year ago.