IBM 2006 Annual Report Download - page 16
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CONTINUING OPERATIONS
The company’s 2006 performance was the result of a series of
actions taken over the last several years to steadily transform the
company. The company has divested of businesses that are commod-
itizing, while investing in targeted acquisitions to continue to build
capabilities in higher value areas. The company has also been focused
on increasing productivity, to expand margins and improve efficiency.
In addition, it has accelerated its move to become a globally inte-
grated company. These actions have resulted in a more balanced mix
of businesses and a stronger, more competitive and sustainable global
business. The company’s 2006 financial results reflect this improved
business model.
The company divested its Personal Computing business on April
30, 2005. Therefore, the company’s reported results for 2006 do not
include any activity for the Personal Computing Division, while the
results for 2005 include four months of activity.
Total revenue, as reported, increased 0.3 percent versus 2005;
excluding the Personal Computing business external revenue from
2005, total 2006 revenue increased 3.6 percent ( 3.2 percent adjusted
for currency). Pre-tax income from continuing operations grew 8.9
percent, while diluted earnings per share from continuing operations
increased 23.4 percent compared to 2005. Income from continuing
operations increased 17.8 percent compared to 2005, benefiting from
an improved effective tax rate year to year. Net cash provided by
operating activities was $15,019 million.
The increase in revenue, excluding the Personal Computing busi-
ness, in 2006 as compared to 2005, was primarily due to:
• Improved demand in the software business, driven by Key Branded
Middleware products, with positive contributions from key acquisitions;
• Increased demand in the hardware business driven by Microelec-
tronics, System z and Storage; growth in System x and Retail Store
Solutions; and
• Continued growth in emerging countries (up 21 percent) and solid per-
formance in the Americas and Europe/Middle East/Africa geographies.
The increase in income from continuing operations before income
taxes in 2006 as compared to 2005 was primarily due to:
• Revenue growth in the Software segment as discussed above;
• Continued execution of the company’s productivity initiatives driving
improved Global Services gross margins; and
• Revenue growth and continued operational improvement in the
Microelectronics business.
MANAGEMENT DISCUSSION SNAPSHOT
(Dollars and shares in millions except per share amounts)
YR. TO YR.
PERCENT/
MARGIN
FOR THE YEAR ENDED DECEMBER 31: 2006 2005 CHANGE
Revenue $ , $ , .%*
Gross profit margin .% .% . pts.
Total expense and
other income $ , $ , .%
Total expense and other
income to revenue ratio .% .% . pts.
Income from continuing
operations before
income taxes $ , $ , .%
Provision for income taxes $ , $ , (. )%
Income from continuing
operations $ , $ , .%
Earnings per share of
common stock:
Assuming dilution:
Continuing operations $ . $ . .%
Discontinued operations . (.) NM
Cumulative effect
of change in
accounting principle — (.) NM
Total $ . $ . .%
Weighted-average shares
outstanding:
Diluted ,. ,. (. )%
Assets** $, $, (. )%
Liabilities** $ , $ , .%
Equity** $ , $ , (. )%
* Flat when adjusted for currency.
** At December 31.
NM—Not meaningful
MANAGEMENT DISCUSSION
INTERNATIONAL BUSINESS MACHIN ES CORPORATION AND SUBSI DIARY COMPANIES
14 2006 Annual Report
Management Discussion ........................................................
Road Map .............................................................................
Forward-Looking and Cautionary Statements .....................
Management Discussion Snapshot ......................................
Description of Business .......................................................
Year in Review......................................................................
Prior Year in Review .............................................................
Discontinued Operations .....................................................
Other Information ................................................................
Global Financing ..................................................................
Report of Management .........................................................
Report of Independent Registered Public Accounting Firm ....
Consolidated Statements .......................................................
Black
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2718 CG10