MOODY'S UPGRADES LONG-TERM DEBT AND PREFERRED STOCK RATINGS OF INTERNATIONAL BUSINESS MACHINES CORP. AND ITS FINANCIALLY SUPPORTED SUBSIDIARIES, SENIOR UNSECURED TO A1 FROM A3
NEW YORK, 08-28-95 -- Moody's Investors Service raised its ratings on the long-term debt and preferred stock of International Business Machines Corp. (IBM) and its financially supported subsidiaries, senior unsecured to A1 from A3 and preferred stock to "a1" from "baa1". The ratings upgrade is based on the strengthening of IBM's capital structure and fixed-charge coverages and the promising outlook for continued revenue, profit, and cash flow growth over the intermediate term. This rating action completes a review of IBM's long-term debt and preferred stock ratings initiated on April 20, 1995.
Ratings upgraded are:
International Business Machines Corp. -- senior unsecured to A1 from A3, counterparty rating to A1 from A3, and preferred stock to "a1" from "baa1".
IBM Australia Credit Limited -- senior unsecured to A1 from A3.
IBM Brasil Leasing Arrendamento Mercantil S/A -- senior unsecured to A1 from A3.
IBM Credit Corp. -- senior unsecured to A1 from A3.
IBM International Finance, N.V. -- senior unsecured to A1 from A3.
The Prime-1 rating for short-term debt of IBM and its financially supported subsidiaries was not affected by Moody's review.
According to Moody's, IBM's strong management team has achieved impressive results in restoring the company's balance sheet and liquidity by reducing debt, cutting costs, and improving operating efficiencies. Since taking over in 1993, management has slashed IBM's non-customer financing-related leverage and rebuilt the company's cash position while paying huge severance and restructuring costs. The restoration of IBM's balance sheet and the increased predictability of cash flows has permitted management to embark on a $5 billion share repurchase program and to acquire Lotus Development Corp. for $3.5 billion in cash without materially impairing the company's liquidity. In raising IBM's long-term debt rating, Moody's expects that IBM will continue to maintain a conservative and liquid balance sheet while making the appropriate investments to build its businesses, and that excess cash flows, rather than leverage, will be used to fund future share repurchases and large strategic acquisitions, or to absorb additional restructuring costs.
Management has made considerable headway at reengineering IBM, Moody's said, significantly improving the company's competitiveness and operating efficiency in a number of its business segments, and restoring market and customer confidence. The rating agency anticipates continued operating performance improvement at IBM over the near term as management continues its remaking of the company. A substantial percentage of IBM's revenues and profits are derived from contractual, annuity-like businesses such as customer financing, services, high-end software, and maintenance, and this is expected to continue to provide support to the company's results. However, Moody's also believes that IBM will face significant operating and strategic challenges including, generating consistently profitable hardware revenue and earnings growth, particularly in personal computers; building market position, revenues and cash flows in its emerging software, networking, and OEM businesses; and preserving near-term the revenues and cash flows of its traditional, high-margin mainframe and maintenance businesses.
International Business Machines Corp., headquartered in Armonk, New York, is the world's largest manufacturer of data processing machines and systems. The company is engaged in the design, development, manufacture, and marketing of computers and related products.
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