IBM 2005 Annual Report Download - page 33
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ManagementDiscussion
INTERNATIONALBUSINESSMACHINESCORPORATION ANDSUBSIDIARYCOMPANIES
32_ ManagementDiscussion
Othernon-currentliabilitiesdecreased$2,628milliondueto
decreases of $2,104 million in Retirement and nonpension
postretirementobligationsofwhichapproximately$1,137 million
wasduetotheeffects ofcurrencyandtheremaining$967 mil-
lionwasattributabletothe favorablefundedstatusofprimarily
non-U.S. pensionplansasdiscussedon page93;and$524mil-
lioninotheraccrualsprimarilyduetotheeffectsofcurrency.
DEBT
Thecompany’sfundingrequirementsarecontinuallymonitored
andstrategiesareexecutedtomanage the company’soverall
asset and liability profile. Additionally, the company maintains
sufficientflexibilitytoaccessglobalfundingsourcesasneeded.
(Dollarsinmillions)
ATDECEMBER31: 2005 2004
Totalcompanydebt $«22,641 $«22,927
Non-GlobalFinancingdebt* $«««2,142 $««««««607
Non-GlobalFinancingdebt/
capitalization 6.7% 2.1%
* Non-GlobalFinancingdebtisthecompany’stotalexternaldebtlesstheGlobal
FinancingdebtdescribedintheGlobalFinancingbalancesheetonpage 44.
Non-Global Financing debt increased $1,535 million and the
debt-to-capitalratio at December31, 2005 was within accept-
ablelevelsat 6.7 percent.Non-GlobalFinancingdebtincreased
versus 2004 primarily to facilitate the company’s repatriation
actions under the American Jobs Creation Act of 2004. The
increaserelatesto short-termdebtissuances.
EQUITY
(Dollarsinmillions)
ATDECEMBER31: 2005 2004
Stockholders’equity:
Total $«33,098 $«31,688
Thecompany’stotalconsolidatedStockholders’ equityincreased
$1,410 million during 2005 primarily due to an increase in the
company’sretainedearningsdrivenbynetincome,partiallyoff-
setby the company’songoingstockrepurchaseprogram and
higherdividendpayments.
OFF-BALANCE SHEET ARRANGEMENTS
In theordinarycourseofbusiness, thecompanyenteredintooff-
balance sheet arrangements as defined by the SEC Financial
Reporting Release 67 (FRR-67), “Disclosure in Management’s
DiscussionandAnalysisaboutOff-BalanceSheetArrangements
andAggregateContractualObligations.”
Noneoftheseoff-balancesheetarrangementseitherhas,or
isreasonablylikely to have,a material currentorfutureeffecton
financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or
capitalresources.Seepage 39 forthecompany’scontractualobli-
gations and note O,“ContingenciesandCommitments,” onpage
78, for detailed information about the company’s guarantees,
ConsolidatedFourth-QuarterResults
(Dollars andshares inmillionsexceptpershareamounts)
YR. TOYR.
FORFOURTHQUARTER: 2005 2004 CHANGE
Revenue $«24,427 $«27,671 (11.7) % *
Grossprofitmargin «44.1% «38.8% 5.3 pts.
Totalexpenseand
otherincome $«««6,197 $«««6,690 (7.4) %
Totalexpenseandother
income-to-revenueratio 25.4% 24.2% 1.2 pts.
Incomefromcontinuing
operationsbefore incometaxes $«««4,568 $«««4,048 12.8%%
Provisionforincometaxes $«««1,348 $«««1,206 11.6%%
Incomefromcontinuing
operations $«««3,220 $«««2,842 13.3%
Income/(loss)from
discontinuedoperations $««««««««««3 $«««««««(15) NM
Cumulativeeffectofchange
inaccountingprinciple** $«««««««(36) $««««««««— NM
Earningspershareof
commonstock:
Assumingdilution:
Continuingoperations $«««««2.01 $«««««1.68 19.6%
Discontinuedoperations ««««««««— «« (0.01) NM
Cumulativeeffect
ofchangein
accountingprinciple** «««(0.02) «««««««— NM
Total $«««««1.99 $«««««1.67 19.2%
Weighted-averageshares
outstanding:
Assumingdilution 1,604.8 1,692.1 (5.2) %
* (8.5)percentadjustedforcurrency.
** Reflects implementationofFASBInterpretationNo.47.Seenote B,“Accounting
Changes,”onpages61 and62 foradditionalinformation.
NM—NotMeaningful
CONTINUING OPERATIONS
Inthefourthquarter,thecompanyincreasedIncomefromcontin-
uingoperationsby$378millionor13.3percentversusthefourth
quarterof2004.Dilutedearningspersharefromcontinuingoper-
ationsof$2.01 increased19.6percentversustheprioryear.
The company’s performance in the fourth quarter was
drivenbyseveralfactors:
• Strongresultsinthehardwarebusiness, driven by Storage
products,Microelectronicsand zSeriesandpSeriesservers.
• Increaseddemandforthecompany’skeybrandedmiddleware
softwareproductsandimprovedprofitabilityinthatsegment.
financialcommitments and indemnification arrangements. The
companydoesnothaveretainedinterestsinassetstransferred
to unconsolidated entities (see note J, “Securitization of
Receivables,” on page 70) or other material off-balance sheet
interestsorinstruments.