IBM 2007 Annual Report Download - page 36

Management Discussion
International Business Machines Corporation and Subsidiary Companies
34
The increase in Noncurrent assets of $8,680 million compared to the
prior year-end balance was primarily driven by:
U An increase of $6,788 million ($505 million due to currency) in Prepaid
pension assets primarily resulting from an increase in overfunded pension
plans reflecting year-end remeasurements;
U An increase of $1,535 million ($526 million due to currency) in Long-term
financing receivables mainly due to increased Global Financing volumes;
U An increase of $1,431 million ($347 million due to currency) in Goodwill
driven by acquisitions in 2007; and
U An increase of $642 million in Plant, rental machines and other property
(net) effectively all due to currency effects.
These increases were partially offset by:
U A decrease of $1,621 million in Investments and sundry assets primarily
resulting from:
— a decrease of $2,367 million in noncurrent deferred tax assets pri-
marily related to the pension remeasurements;
— growth of $243 million in noncurrent deferred transition costs driven
by an increase in long-term services arrangements with clients; and
— $170 million due to increased investments in long-term marketable
securities.
Long-term debt increased $9,259 million due to new borrowings in
2007 primarily to finance the ASR agreements. See note M, “Stock-
holders’ Equity Activity,” on pages 92 and 93 for detailed discussion.
Other Noncurrent liabilities, excluding debt, increased $3,755
million primarily driven by:
U An increase in noncurrent tax reserves of $2,107 million as a result of a
reclassification from current ($2,066 million) related to FIN 48 imple-
mentation and current year activity;
U Growth of $558 million in noncurrent deferred income mainly driven by
Global Technology Services;
U An increase of $399 million in noncurrent deferred tax liabilities pri-
marily due to pension remeasurement; and
U An increase of $298 million in long-term derivative liabilities due to
changes in foreign currency rates for hedge of net investments.
Debt
The company’s funding requirements are continually monitored and
strategies are executed to manage the overall asset and liability pro-
file. Additionally, the company maintains sufficient flexibility to access
global funding sources as needed.
($ in millions)
AT DECEMBER 31: 2007 2006
Total company debt $35,274 $22,682
Total Global Financing segment debt $24,532 $22,287
Debt to support external clients 21,072 18,990
Debt to support internal clients 3,460 3,297
The Global Financing business provides funding predominantly for
the company’s external client assets as well as for assets under con-
tract by other IBM units. These assets, primarily for Global Services,
generate long-term, stable revenue streams similar to the Global
Financing asset portfolio. Based on their nature, these Global Services
assets are leveraged with the balance of the Global Financing asset
base. The debt analysis above is further detailed in the Global
Financing section on page 54.
Non-Global Financing debt increased $10,348 million and the
debt-to-capital ratio at December 31, 2007 was 30.0 percent. Non-
Global Financing debt increased versus 2006 primarily due to the
financing of the ASR agreements in the second quarter of 2007. The
debt-to-capital ratio was 46.7 percent at June 30, 2007. A reduction
of $1,034 million in non-Global Financing debt and an increase of
$11,554 million in equity has reduced the ratio from the half-year
point. See note M, “Stockholders’ Equity Activity,” on pages 92 and
93 for detailed information.
Equity
($ in millions)
AT DECEMBER 31: 2007 2006
Stockholders’ equity:
Total $28,470 $28,506
The company’s consolidated Stockholders’ equity decreased $36 mil-
lion in 2007 as a result of several key factors:
U A decrease related to net stock transactions of $13,732 million, driven
by common stock repurchases which resulted in an increase in Treasury
stock in 2007.
Management Discussion ............................ 14
Road Map .........................................................14
Forward-Looking and
Cautionary Statements .....................................15
Management Discussion Snapshot ..................16
Description of Business ....................................17
Year in Review ............................................ 23
Prior Year in Review ........................................37
Discontinued Operations .................................42
Other Information ............................................42
Global Financing ..............................................50
Report of Management ....................................56
Report of Independent Registered
Public Accounting Firm ...................................57
Consolidated Statements ..................................58
Notes .................................................................64