IBM 2007 Annual Report Download - page 47

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Management Discussion
International Business Machines Corporation and Subsidiary Companies
45
Events that could temporarily change the historical cash flow dynam-
ics discussed on page 44 include significant changes in operating
results, material changes in geographic sources of cash, unexpected
adverse impacts from litigation or future pension funding during
periods of severe and prolonged downturn in the capital markets.
Whether any litigation has such an adverse impact will depend on a
number of variables, which are more completely described on page
96. In January 2008, the company closed the previously announced
Cognos acquisition for approximately $5.0 billion in cash; the
Telelogic acquisition is also expected to close for approximately $0.8
billion following the completion of regulatory reviews. With respect
to pension funding, in the first quarter of 2007, the company made a
$500 million voluntary cash contribution to the U.S. nonpension
postretirement plan, and in the first quarter of 2006, the company
contributed approximately $1 billion to the U.K. pension plan. In
addition, on January 19, 2005, the company contributed $1.7 billion
to the qualified portion of the PPP, a U.S. defined benefit plan. As
highlighted in the Contractual Obligations table on page 46, the com-
pany expects to make legally mandated pension plan contributions to
certain non-U.S. plans of approximately $3.3 billion in the next five
years. The company is not quantifying any further impact from pen-
sion funding because it is not possible to predict future movements
in the capital markets or pension plan funding regulations.
The Pension Protection Act of 2006 (the Act) was enacted into
law in 2006, and, among other things, increases the funding require-
ments for certain U.S. defined benefit plans beginning after December
31, 2007. No mandatory contribution is required for the U.S. defined
benefit plan in 2008.
The table below represents the way in which management reviews cash flow as described on page 44.
($ in billions)
FOR THE YEAR ENDED DECEMBER 31: 2007 2006 2005 2004 2003
Net cash from operating activities (Continuing Operations) $16.1 $15.0 $14.9 $15.3 $14.5
Less: Global Financing accounts receivable (1.3) (0.3) 1.8 2.5 1.9
Net cash from operating activities (Continuing
Operations), excluding Global Financing receivables 17.4 15.3 13.1 12.9 12.6
Capital expenditures, net (5.0) (4.7) (3.5) (3.7) (3.9)
Free cash flow (excluding Global Financing
accounts receivable) 12.4 10.5 9.6 9.1 8.7
Acquisitions (1.0) (3.8) (1.5) (1.7) (1.8)
Divestitures 0.3 — 0.9 — 0.1
Share repurchase (18.8) (8.1) (7.7) (7.1) (4.3)
Dividends (2.1) (1.7) (1.2) (1.2) (1.1)
Non-Global Financing debt 10.9 (1.1) 1.2 0.7 (0.9)
Other (includes Global Financing accounts
receivable and Global Financing debt) 3.8 1.1 1.9 3.1 1.0
Change in cash, cash equivalents
and short-term marketable securities $ 5.5 $ (3.0) $ 3.1 $ 2.9 $ 1.7