IBM 2008 Annual Report Download - page 38


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
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 on page  is further detailed in the Global
Finan cing section on page .
Total debt decreased $, million in 
versus  , primarily
due to reductions in commercial paper. The debt-
to-capital ratio at
December ,  was . percent, an increase of . points from
December , , primarily due to the reduction in equity driven
by the pension remeasurements.
EQUITY
($  )
At December : 2008 2007
Stockholders’ equity
TOTAL $13,465 $28,470
The company’s consolidated stockholders’ equity decreased $,
million in  as a result of several key factors:
• A decrease of $, million in accumulated gains and
(l osses)
not affecting retained earnings resulted from non-cash equity
impacts, primarily from pension remeasurement and other retire-
ment-related activities ($, million), and a decrease in foreign
currency translation adjustments ($, million); and
• A decrease related to net stock transactions of $, million,
driven by common stock repurchases;
Partially offset by:
• An increase of $, million in retained earnings primarily driven
by net income of $, million, partially offset by dividends
($, million).
 - 
($        )
Yr.-to-Yr.
Percent/
Margin
For the fourth quarter: 2008 2007 Change
Revenue $27,006 $28,866 (6.4)%*
Gross profit margin 47.9% 44.9% 3.0 pts.
Total expense and other income $ 7,127 $ 7,481 (4.7)%
Total expense and other
income-to-revenue ratio 26.4% 25.9% 0.5 pts.
Income from continuing
operations before income taxes $ 5,808 $ 5,489 5.8%
Provision for income taxes 1,382 1,537 (10.1)%
Income from continuing operations 4,427 3,951 12.0%
Income from discontinued operations — 1 NM
Net income $ 4,427 $ 3,952 12.0%
Net income margin 16.4% 13.7% 2.7 pts.
Earnings per share of common stock:
Assuming dilution:
Continuing operations $ 3.28 $ 2.80 17.1%
Discontinued operations — 0.00 NM
Total $ 3.28 $ 2.80 17.1%
Weighted-average shares
outstanding:
Assuming dilution 1,347.9 1,412.9 (4.6)%
* (1.0 ) percent adjusted for currency.
NM—Not meaningful
Continuing Operations
In the fourth quarter, in an increasingly challenging economic
environment, the company delivered solid financial results. Total
revenue decreased . percent as reported, . percent adjusted for
currency, versus the fourth quarter of . Gross margin improved
. points driven by margin expansion in Global Services and
Software. This improvement in gross margin coupled with focused
expense management drove an improvement year to year in pre-tax
income of . percent. A lower tax rate versus the prior year, primar-
ily driven by the utilization of tax credits , resulted in a . percent
increase in net income. Diluted earning per share of $. increased
. percent year to year.