IBM 2008 Annual Report Download - page 21


Management Discussion
INTERNATIONAL BUSINESS MACHINES CORPORATION and Subsidiary Companies
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Management Discussion Snapshot
($        )
Yr.-to -Yr.
Percent/
Margin
For the year ended December : 2008 2007 Change
Revenue $103,630 $ 98,786 4.9%*
Gross profit margin 44.1% 42.2% 1.8 pts.
Total expense and other income $ 28,945 $ 27,240 6.3%
Total expense and other
income-to-revenue ratio 27.9% 27.6% 0.4 pts.
Income from continuing
operations before income taxes $ 16,715 $ 14,489 15.4%
Provision for income taxes 4,381 4,071 7.6%
Income from continuing
operations $ 12,334 $ 10,418 18.4%
Net income $ 12,334 $ 10,418 18.4%
Net income margin 11.9% 10.5% 1.4 pts.
Earnings per share of
common stock:
Assuming dilution:
Continuing operations $ 8.93 $ 7.18 24.4%
Discontinued operations —(0.00) NM
Total $ 8.93 $ 7.18 24.4%
Weighted-average shares
outstanding:
Assuming dilution 1,381.8 1,450.6 (4.7)%
Assets** $109,524 $120,431 (9.1)%
Liabilities** $ 96,058 $ 91,962 4.5%
Equity** $ 13,465 $ 28,470 (52.7)%
* 2.3 percent adjusted for currency.
** At December 31.
NM—Not meaningful
 
In , the company performed extremely well in a difficult econ-
omic environment, delivering record levels of revenue, pre-tax profit,
earnings per share and cash flow from operations. The financial per-
formance reflected the continuing strength of the company’s global
model and the results of the ongoing transformation of the business.
The key elements of the company’s transformation include:
• A continuing shift to higher value businesses;
• Investing for growth in the emerging markets;
• Global integration;
• Investing in innovation; and
•
Ongoing productivity resulting in higher profit margins.
Overall, the company capitalized on the opportunities in the global
economies, generating approximately  percent of its revenue outside
the United States (U.S.), in delivering full year growth of . percent
( percent adjusted for currency). Revenue increased in all geogra-
phies, both on an as reported basis and adjusted for currency — the
revenue performance, adjusted for currency, was stable throughout
the year as the company focused on solutions that meet clients’ needs.
Revenue from the company’s growth markets organization increased
. percent ( percent adjusted for currency). In these markets,
where the growth is driven by the infrastructure build-out, the com-
pany invested aggressively to capture these opportunities. For the full
year and in the fourth quarter, growth in these markets, adjusted for
currency, was  points greater than the major markets.
Gross profit margins improved, reflecting the shift to higher
value businesses, pricing for value and the continued focus on pro-
ductivity and cost management. Pre-tax income from continuing
operations grew . percent and net income from continuing
operations increased . percent reflecting an improvement in the
company’s tax rate. Diluted earnings per share improved . percent
reflecting the strong growth in net income and the benefits of the
common stock repurchase program. In , the company repur-
chased approximately  million shares of its common stock.
The increase in  revenue was primarily due to:
• Continued strong performance from Global Technology Services
and Global Business Services with growth in all business lines and
geographic units;
• Continued strong demand in the Software business, driven by Key
Branded Middleware products, with strong contributions from
strategic acquisitions; and
• Continued strength in the growth markets.
The increase in income from continuing operations before income
taxes in  was primarily due to the revenue growth and gross profit
margin improvements in the Global Services and Software segments.
The consolidated gross profit margin increased . points versus
 to . percent. Gross margin performance by segment and the
impact to the consolidated gross margin was as follows:
Gross Yr.-to-Yr. Consolidated
Margin Change Impact
Global Technology Services 32.6% 2.7 pts. 0.8 pts.
Global Business Services 26.7% 3.2 pts. 0.5 pts.
Software 85.4% 0.2 pts. 0.5 pts.
Systems & Technology 38.1% (1.7) pts. (0.2) pts.
Global Financing 51.3% 4.6 pts. 0.1 pts.