IBM 2008 Annual Report Download - page 36


Management Discussion
INTERNATIONAL BUSINESS MACHINES CORPORATION and Subsidiary Companies
Management Discussion ................................................................................................18
ROAD MAP ............................................................................................................ 18
FORWARD-LOOKING AND CAUTIONARY STATEMENTS ...................................... 18
MANAGEMENT DISCUSSION SNAPSHOT ............................................................ 19
DESCRIPTION OF BUSINESS................................................................................ 20
YEAR IN REVIEW ..................................................................................................25
PRIOR YEAR IN REVIEW .......................................................................................39
DISCONTINUED OPERATIONS ..............................................................................44
OTHER INFORMATION ..........................................................................................44
GLOBAL FINANCING .............................................................................................53
Report Of Management ............................................................................................... 58
Report Of Independent Registered Public Accounting Firm ................................. 59
Consolidated Statements ............................................................................................ 60
Notes ............................................................................................................................... 66
WORKING CAPITAL
($  )
At December : 2008 2007
Current assets $49,004 $53,177
Current liabilities 42,435 44,310
WORKING CAPITAL $ 6,568 $ 8,867
Current ratio 1.15 1.20
Working capital decreased $, million compared to the prior year
primarily as a result of a net decrease in current assets. The key drivers
are described below:
Current assets decreased $, million due to:
• A decrease of $, million in cash and cash equivalents and
marketable securities (see Cash Flow analysis below and on
page );
• A decrease of $, million in short-term receivables driven by
currency impacts of $, million;
Partially offset by:
• An increase of $ million in prepaid expenses and other current
assets primarily resulting from:
– an increase of $ million in prepaid taxes;
– an increase of $ million in derivative assets primarily due
to changes in foreign currency rates for certain economic
hedges; and
– approximately $ million negative currency impact.
Current liabilities decreased $, million as a result of:
• A decrease of $, million (including $ million of negative
impact due to currency) in accounts payable primarily due to lower
purchasing volumes;
• A decrease of $ million in short-term debt primarily driven by
the reduction in commercial paper balances; and
• A decrease of $ million (including $ million negative cur-
rency impact) in taxes payable;
Partially offset by:
• An increase of $ million in other accrued liabilities primarily
due to:
– an increase of $ million in derivative liabilities as a result of
changes in foreign currency rates;
– an increase of $ million in workforce reduction accruals; and
– approximately $ million negative currency impact.
• An increase of $ million (net of a $ million negative
currency impact) in deferred income mainly driven by Software
($ million) and Global Services ($ million).
CASH FLOW
The company’s cash flow from operating, investing and financing
activities, as reflected in the Consolidated Statement of Cash Flows on
page , is summarized in the following table. These amounts include
the cash flows associated with the Global Financing business.
($  )
For the year ended December : 2008 2007
Net cash provided by/(used in)
continuing operations:
Operating activities $ 18,812 $16,094
Investing activities (9,285) (4,675)
Financing activities (11,834) (4,740)
Effect of exchange rate changes on cash
and cash equivalents 58 294
Net cash used in discontinued
operations — operating activities — (5)
NET CHANGE IN CASH AND CASH EQUIVALENTS $ (2,250) $ 6,969
Net cash from operating activities for  increased $, million
as compared to  driven by the following key factors:
• An increase in net income of $, million;
• Decreases in accounts receivable drove an increase in cash of
$, million, driven by Global Financing receivables ($,
million) and non-Global Financing receivables ($ million)
primarily resulting from reduced fourth-quarter  revenue
and im proved collections; and
• A decrease year to year in retirement-related plan funding of
$ million;
Partially offset by:
• Accounts payable drove a use of cash of $ million; and
• A decrease in cash of $ million driven by growth in inventory.
Net cash used in investing activities increased $, million on a
year-to-year basis driven by:
• An increase of $, million utilized for acquisitions (see note C,
“Acquisi tions/Divestitures,” on pages  through  for additional
information); and
• A decrease of $ million received from divestitures;