International Business Machines Corporation (IBM) was once the dominant computer manufacturer in the world and, from 1960

Question:

International Business Machines Corporation (IBM) was once the dominant computer manufacturer in the world and, from 1960 to 1980, the leading growth company. Indeed, in those years IBM became the very personification of a growth company. However, with the advent of decentralized computing and the personal computer in the 1980s, IBM's growth began to slow. Under the leadership of Louis Gerstner Jr., the firms transformed itself in the early 1990s from a mainframe manufacturer to an information technology company, providing technology, system software, services, and financing products to customers. Mr. Gerstner's book, Who Says Elephants Can't Dance ? Inside IBM's Historic Turnaround, published in 2002, gives the play-by-play. From revenues of $64.8 billion in 1991, IBM grew to a firm with $88.4 billion in revenues in 2000.

In turning around the business, IBM took large restructuring charges against its income in the early 1990s, resulting in net losses of $2.861 billion, $4.965 billion, and $8.101 billion for 1991-1993, respectively. Subsequently the firm delivered the earnings growth of yesteryear. You can see at the bottom of the income statements in Exhibit 12.4 that earnings per share grew from $2.56 in 1996 to $4.58 in 2000.

At a number of points, this chapter has analyzed the components of IBM's earnings in order to understand their sustainability. From the information extracted from IBM's financial statement footnotes below, restate the income statements from 1996 to 2000 in Exhibit 12.4 to identify core operating income that arises from selling products to customers. The footnotes are from the firm's 1999 10-K filing; you may also wish to look at the corresponding footnotes for other years. The extracts from the firm's cash flow statement in Exhibit 12.4 will also help you in your task.

Do you get a different picture of IBM's income growth during the last half of the 1990s than is suggested by growth in earnings pershare?

International Business Machines Corporation (IBM) was once the d

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...