IBM 2005 Annual Report Download - page 32
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ManagementDiscussion
INTERNATIONALBUSINESSMACHINESCORPORATION ANDSUBSIDIARYCOMPANIES
_31
primarilydriven by the final paymentreceivedfromHitachi for
thepurchaseoftheHDDbusiness,and$1,637millionduetothe
effectsofcurrency;andadecreaseof$475millionininventories
primarily driven by the Personal Computing divestiture and
reductionsintheSystemsandTechnologyGroupserverbrands.
These declines werepartiallyoffsetby the$3,116millionincrease
(approximately$3,905millionbeforenegativecurrencyimpact
of$789million) in Cash and cash equivalents and Marketable
securities(seetheCashFlowanalysis below).
Currentliabilities decreased$4,634 millionprimarilydueto
declinesof: $2,095 millionin Accounts payable ofwhichapprox-
imately $1,100 million was due to the Personal Computing
divestiture and $332 million due to the effects of currency;
$1,303 million in other accruals driven primarily by a decline
in derivative liabilities due to year-to-year changes in foreign
currencyrates;and$883millioninShort-termdebtprimarilydue
to the settlement of $2,300 million in commercial paper debt,
partiallyoffsetbynewdebtissuancesof approximately$1,500
milliontofacilitate foreignearningsrepatriationactions.
CASH FLOW
Thecompany’scashflowfromoperating,investingandfinanc-
ingactivities,asreflectedintheConsolidatedStatementofCash
Flows on page 50, are summarized in the table below. These
amountsincludethecashflowsassociatedwiththecompany’s
GlobalFinancingbusiness.Seepages 43 through 47.
(Dollarsinmillions)
FORTHEYEARENDEDDECEMBER31: 2005 2004
Netcashprovidedby/(usedin)
continuingoperations:
Operatingactivities $«14,914 $«15,349
Investingactivities (4,423) (5,346)
Financingactivities (7,147) (7,562)
Effectofexchangeratechanges
oncashandcashequivalents (789) 405
Netcashusedindiscontinued
operations* (40) (83)
Netchangeincashand
cashequivalents $«««2,515 $«««2,763
* Doesnotinclude$319millionin2005ofnetproceedsfromthesaleoftheHDD
business.$51 millionisincludedin Operatingactivities fromcontinuingoperations
and$268millionisincludedin Investingactivities fromcontinuingoperations.
Netcash fromoperatingactivitiesfor theyearendedDecember
31, 2005 decreased $435 million as compared to 2004. The
decrease was primarily driven by an increase in restructuring
paymentsof$1,012million and anincreasein pensionfunding in
theUnitedStates ofapproximately$1,015 million, partiallyoffset
bythe$775million legal settlementpaymentfromMicrosoft and
$493millionduetoimprovedmanagementofinventoryprimarily
inthe SystemsandTechnologyGroup.
Net cashusedin investingactivitiesdecreased$923million
onayear-to-yearbasisdrivenby:a$907millionimprovementin
divestiture-related cash due to the divestiture of the Personal
Computing business and disposition of a portion of Lenovo
shares (approximately $662 million) and the final net payment
received from Hitachi for the purchase of the HDD business
(approximately$268million);a$218 milliondeclineinnetcapi-
talspending and$256million in lower cashspendingfor acqui-
sitions;however,thecompanydidexpend$1,482 millioninnet
cash on acquisitions in 2005. These declines were partially
offset by a $458 million increase in marketable securities and
otherinvestments.
Thedecreaseinnetcash usedinfinancingactivitiesof$415
millionwasprimarilytheresultofanincreaseinnetcash inflows
relatedtodebtofapproximately$1,636million,partiallyoffsetby
highernetpaymentsforcommonstockactivityof$1,145million
andhigherdividendpaymentsof$76million.Within total debt,
on a net basis, in 2005, the company had $609 million in net
cash proceeds from new debt versus $1,027 million used to
retire debt in 2004. The net cash proceeds of $609 million in
2005 comprise $4,363millionofcashproceedsfromnewdebt
partiallyoffsetby$3,522millionofcashpaymentstosettledebt
andby $232million inshort-term repayments.Thehigherpay-
mentsforcommonstockweredriven by increasesofapproxi-
mately$594millionincashpaymentstorepurchasestockand
decreases of approximately $551 million in cash received for
stock issued under the company’s stock option plan and
employeestockpurchaseplan.
NON-CURRENT ASSETS AND LIABILITIES
(Dollarsinmillions)
AT DECEMBER31: 2005 2004
Non-currentassets $«60,087 $«63,860
Long-termdebt $«15,425 $«14,828
Non-currentliabilities (excludingdebt) $«22,073 $«24,701
ThedecreaseinNon-currentassetsof$3,773millionwasprima-
rily driven by declines of: $2,141 million in Investments and
sundryassets;$1,419millioninPlant,rentalmachines,andother
property-net which was driven by the effects of currency
(approximately$562million)andassetsales;and$1,322 million
inLong-termfinancingreceivables(seepage 45). Thedecline
inInvestmentsandsundry assets was mainly dueto a$2,839
milliondecrease($252millionduetotheeffectsofcurrency)in
deferredtaxassetsdrivenby theutilizationofincometaxcredit
carryforwardsandU.S.andnon-U.S.pensionactivity,partially
offset by increases of $314 million in deferred transition costs
drivenbygrowthinservicesarrangementswithclients,$155mil-
lion in alliance investments primarily due to the company’s
equityinterestinLenovo,and$112millioninnon-currentderiva-
tive assets dueto theappreciationoftheU.S.dollaragainstcer-
tainforeigncurrencies. Thesedeclineswerepartially offsetby
increasesof$1,004millioninGoodwilldrivenbythecompany’s
acquisitions and $231 million (approximately $1,220 million
beforenegativecurrencyimpactof$989million)inPrepaidpen-
sionassetsdueprimarilytothe$1,700 million fundingoftheIBM
PersonalPensionPlan(PPP) inthefirstquarterof2005.
Long-term debt increased $597 million due to new debt
issuances. Thecompanycontinuallymonitorsits liquidityprofile
andinterestrates, andmanagesitsshort- andlong-term debt
portfoliosaccordingly.