IBM 2008 Annual Report Download - page 41

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Management Discussion
INTERNATIONAL BUSINESS MACHINES CORPORATION and Subsidiary Companies
Total expense and other income decreased . percent compared to
the fourth quarter of . The decrease was driven by approximately
 points due to the effects of currency, partially offset by  points due
to the impact of acquisitions with the remainder attributed to lower
operational expenses. The company continues to focus on structural
changes that reduce spending and improve productivity. Within sell-
ing, general and administrative expense, workforce reduction charges
increased approximately $ million in the fourth quarter, reflecting
workforce actions in Japan and other ongoing skills rebalancing.
Other (income) and expense was $ million of income, a decrease of
. percent compared to fourth-quarter . Interest income was
down approximately $ million reflecting the current interest rate
environment. While the effects of foreign currency transaction losses
also negatively impacted other (income) and expense in the fourth
quarter, they were partially offset by a benefit from the impact of the
company’s hedging programs, which was a gain in the fourth quarter
of  compared to a loss in the prior year.
The company’s effective tax rate in the fourth-quarter  was
. percent compared with . percent in the fourth quarter of
. The . point decrease in the fourth-quarter  tax rate was
primarily attributable to the net effect of several items in the quarter.
In , the fourth-quarter tax rate was favorably impacted by the net
increase in the utilization of foreign and state tax credits as well as the
retroactive reinstatement of the U.S. research tax credit in the fourth
quarter of . These benefits were partially offset by the net tax
cost related to the completion of the U.S. federal income tax exami-
nation for the years  and  including the associated income
tax reserve redeterminations.
Share repurchases totaled $ million in the fourth quarter. The
weighted-average number of diluted common shares outstanding in
the fourth quarter of  was ,. million compared with ,.
million in the fourth quarter of .
The company ended the quarter with $, million of cash and
cash equivalents and generated $, million in cash flow provided
by operating activities driven primarily by net income. Net cash from
investing activities was a use of cash of $ million in fourth quarter
of  versus a source of cash of $, million in the fourth quarter
of , resulting primarily from the disposition of higher levels of
short-term marketable securities in .
Prior Year in Review
The Prior Year in Review section provides a summary of the company’s
financial performance in  as compared to . For a detailed dis-
cussion of  performance, see the company’s  Annual Report.
($        )
Yr.-to-Yr.
Percent/
Margin
For the year ended December : 2007 2006 Change
Revenue $ 98,786 $ 91,424 8.1%*
Gross profit margin 42.2% 41.9% 0.4
pts.
Total expense and other income $ 27,240 $ 24,978 9.1%
Total expense and other
income-to-revenue ratio 27.6% 27.3% 0.3
pts.
Income from continuing
operations before income taxes $ 14,489 $ 13,317 8.8%
Provision for income taxes 4,071 3,901 4.4%
Income from continuing operations 10,418 9,416 10.6%
Income/(loss) from
discontinued operations — 76 NM
Net income $ 10,418 $ 9,492 9.7%
Net income margin 10.5% 10.4% 0.2
pts.
Earnings per share of
common stock:
Assuming dilution:
Continuing operations $ 7.18 $ 6.06 18.5%
Discontinued operations (0.00) 0.05 NM
Total $ 7.18 $ 6.11 17.5%
Weighted-average shares
outstanding:
Assuming dilution 1,450.6 1,553.5 (6.6)%
Assets** $120,431 $103,234 16.7%
Liabilities** $ 91,962 $ 74,728 23.1%
Equity** $ 28,470 $ 28,506 (0.1)%
* 4.2 percent adjusted for currency.
** At December 31.
NM—Not meaningful
 
The company’s performance in  reflected the strength of its global
model. Revenue increased in all geographies, with strong growth in
emerging markets worldwide. The company capitalized on the oppor-
tunities in the global economies, generating  percent of its revenue
outside the United States, in delivering full-year growth of . percent
( percent adjusted for currency).
Gross profit margins improved reflecting a shift to higher value
offerings, continued benefits from productivity initiatives and the
transformation to a globally integrated enterprise. Pre-tax income
from continuing operations grew . percent and net income from
continuing operations increased . percent versus . Diluted
earnings per share improved . percent, reflecting the strong
growth in net income and the benefits of the common stock repur-
chase program. In , the company repurchased approximately
$. billion of its common stock, including a $. billion accelerated
share repurchase in the second quarter.