ARMONK, N.Y.--July 17, 2002--IBM today announced second-quarter 2002 diluted earnings per common share of $.03, including $.81 per diluted share of incremental charges associated with the realignment of the Microelectronics Division, the agreement to sell the hard disk drive business, and workforce reductions, compared with diluted earnings per common share of $1.15 in the second quarter of 2001. Excluding the charges, diluted earnings per common share would be $.84. Second-quarter net income from all operations was $56 million, including $1.4 billion in incremental charges -- $2.1 billion before tax -- compared with $2.0 billion in net income in the second quarter of 2001. Excluding the charges, net income would be $1.45 billion. Total revenues for the second quarter of 2002 of $20.0 billion, which includes $379 million of revenues from hard disk drive unit, were a 7 percent decrease from the second quarter of 2001. Samuel J. Palmisano, IBM president and chief executive officer, said: "I'm proud that the IBM team generated $20 billion in revenues in the second quarter -- one of the most difficult capital spending environments we've seen in decades. Our performance, even in this difficult market, reaffirms the strength of our portfolio and that our strategies are on target. At the same time, we took aggressive actions in the quarter that will strengthen IBM for long-term industry leadership and further improve our cost and expense structure. These actions will immediately strengthen our overall results. "Our software business achieved solid growth, gaining share across the middleware portfolio. We recorded our ninth consecutive quarter of new services signings of $10 billion or more. Also, we held overall share in server and storage systems in the face of pricing and demand pressures. Our margins improved sequentially, and the balance sheet remains strong. "As we look forward, we remain confident that IBM will continue to gain or hold share in our high-priority growth areas of our industry." As previously announced, the company has reached an agreement 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. IBM's second-quarter revenues from continuing operations were $19.7 billion, down 6 percent (6 percent at constant currency) compared with the second quarter of 2001. Diluted earnings per common share from continuing operations was $.25, or $.89 per diluted share before the charges associated with the realignment of the Microelectronics Division and workforce reductions, compared with $1.17 in the second quarter of 2001. Second-quarter net income from continuing operations was $445 million, or $1.6 billion before the charges, compared with $2.1 billion in net income in the second quarter of 2001. From discontinued operations, IBM reported a net loss of $389 million, or $.22 per diluted share in the second quarter of 2002. From continuing operations, in the Americas, second-quarter revenues were $9.0 billion, a decrease of 5 percent (4 percent at constant currency) from the 2001 period. Revenues from Europe/Middle East/Africa were $5.6 billion, down 3 percent (7 percent at constant currency). Asia-Pacific revenues declined 3 percent (2 percent at constant currency) to $4.1 billion. OEM revenues decreased 32 percent (31 percent at constant currency) to $844 million compared with the second quarter of 2001. Revenues from IBM Global Services, including maintenance, declined 1 percent (2 percent at constant currency) in the second quarter to $8.7 billion. Global Services revenues, excluding maintenance, declined 1 percent (2 percent at constant currency). IBM signed $10.6 billion in services contracts in the quarter. Hardware revenues from continuing operations decreased 16 percent (17 percent at constant currency) to $6.7 billion from the 2001 second quarter. Revenues declined significantly in most areas of our server business. Importantly, shipments of IBM zSeries mainframes grew 4 percent, as measured in MIPS (Millions of Instructions Per Second). The IBM xSeries had low, double-digit revenue growth. Personal computer revenues declined year over year. Revenues from Microelectronics decreased from a year ago, reflecting the ongoing weakness in demand for semiconductor products. Software revenues increased 8 percent (7 percent in constant currency) to $3.3 billion compared to the prior year's second quarter. Middleware products, which include WebSphere and DB2 and which comprise 80 percent of IBM's software revenues, grew 10 percent at constant currency in the second quarter. WebSphere, IBM's leading e-business middleware product, grew 17 percent from a year ago. IBM's leading database management software, DB2, grew 11 percent, helped in part by the acquisition of Informix. Revenues from Tivoli continued to rebound year over year. Operating systems revenues declined. Global Financing revenues decreased 2 percent (3 percent at constant currency) in the second quarter to $825 million. Revenues from the Enterprise Investments/Other area, which includes industry- specific IT solutions, declined 23 percent (22 percent at constant currency) compared to the second quarter of 2001 to $227 million. The company's total gross profit margin from continuing operations was 37.0 percent in the 2002 second quarter, down from 38.3 percent in the 2001 second quarter but up nearly one point from the first quarter of 2002. Second-quarter expense from continuing operations was $6.7 billion, with a total expense-to-revenue ratio of 34.0 percent, 9.7 points higher than the year-earlier period, primarily due to charges associated with the second-quarter actions. Selling, general and administrative expense was up 26 percent. Without those charges that apply to SG&A expense, however, SG&A would have been flat in the quarter. IBM's tax rate from continuing operations in the second quarter was 25.3 percent compared with 28.9 percent in the second quarter of 2001. Second-quarter 2002 tax rate is slightly lower due to the effect of the second-quarter actions. For the full-year 2002, the continuing operations tax rate is expected to be approximately 30 percent. IBM spent approximately $1.8 billion on share repurchases in the second quarter. The average number of basic common shares outstanding in the quarter was 1.71 billion compared with 1.74 billion shares in the same period of 2001. There were 1.69 billion basic common shares outstanding at June 30, 2002. Cash on the balance sheet was $3.6 billion at June 30, 2002. Debt totaled $25.8 billion including global financing, a decline of $1.3 billion from year-end 2001. The core debt-to-capitalization ratio was 4 percent at the end of the second quarter, and global financing debt declined $335 million from year-end 2001 to a total of $25.2 billion, resulting in a debt-to-equity ratio of 6.9 to 1. Net income from continuing operations for the six months ended June 30, 2002 was $1.7 billion, or $.98 per diluted common share after incremental charges of $1.1 billion, or $1.62 per diluted common share before the charges. Net income from continuing operations for the first six months of 2001 was $3.9 billion or $2.17 per diluted common share. Revenues from continuing operations for the six months ended June 30, 2002 totaled $37.7 billion, a decrease of 8 percent (7 percent at constant currency) compared with $41.1 billion for the six months of 2001. For the first six months of 2002, net loss from discontinued operations was $481 million, or $.28 per diluted common share.