IBM 2005 Annual Report Download - page 2

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_1
Dear IBM Investor,
In my letters to you over the past several years, I have
described IBM’s view of how the information technology
industry is being radically reshaped by developments in
technology, its application in business and the onrush
of globalization. I have also reported on the actions we
have taken to capitalize on these shifts and to position
our company for long-term prosperity.
_1
AS A RESULT OF THESE ACTIONS, IBM has emerged
from this period a very different company. We are
much more focused on the high-value segments of
our industry, better balanced, more productive and
more profitable than just a few years ago. Our solid
results in 2005 are a consequence of this reposition-
ing, and of the innovation and marketplace execution
of more than 329,000 IBMers around the world.
Our revenue in 2005 was $88.3billion, up
3percent, without our divested personal computer
business. Revenue as reported was $91.1billion,
down 5percent. Pre-tax earnings from continuing
operations were $12.2billion, an increase of 15 per-
cent; and diluted earnings per share were $4.91,
up 12 percent. Excluding non-recurring items, our
earnings per share increased 18 percent, to $5.32.
Particularly noteworthy was a rise of 3.2points in
IBM’s gross profit margin, to 40.1percent.
After investing $5.8billion in R&D, $3.5billion
in net capital expenditures and $1.5billion for acqui-
sitions, we ended the year with $13.7billion of cash,
including marketable securities. Over the past several
years, IBM has consistently generated return on
invested capital significantly above the average for the
S&P 500, and we did so again in 2005, with ROIC
of 24 percent, excluding Global Financing and non-
recurring items. We were able to return a record
of nearly $9billion to you
—
$7.7billion through
share repurchase and $1.2billion through dividends.
After lots of hard work to remix our portfolio of
businesses and to improve IBM’s overall competi-
tiveness, I believe the headwinds we faced entering
the decade are largely behind us. In this letter,
I will describe the performance of IBM’s three major
businesses. I will also describe why I believe that
our business model, based on the twin pillars of