IBM 2003 Annual Report Download

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Table of contents

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    ... the links among openness, standards and trust. Sometimes, consensus is driven by reaction and fear. But at other times, it's fueled by hope. This is one of those times. Which is very good news, both for IBM and for a new era of global business growth. So, while it's certainly nice to be a company...

  • Page 4
    SAMUEL J. PALMISANO Chairman, President and Chief Executive Officer 2

  • Page 5
    ... of after-tax charges for second and fourth quarter 2002 actions. We continued to gain market share across all our core businesses. IBM today is the market leader in servers, middleware, business transformation services and strategic outsourcing. Highlights for the year included revenue growth in...

  • Page 6
    ... for IBM and our investors. By focusing on this space, we believe we can, on a sustainable, long-term basis, generate superior returns compared to the overall IT industry, command leading share position in our selected businesses, outperform the average of the S&P 500 on return on invested capital...

  • Page 7
    ... • In its first year, IBM's Engineering & Technology Services business designed products for Medtronic, New York Stock Exchange, Raytheon, Mayo Clinic and others, generating more than $160 million in revenue in 2003. supply chain improvements • By the end of 2003, the work of transforming and...

  • Page 8
    ... END Cash, cash equivalents and marketable securities Total assets Working capital Total debt Stockholders' equity Common shares outstanding (in millions) Market capitalization Stock price per common share Number of employees in IBM / wholly owned subsidiaries * Reclassified to conform with 2003...

  • Page 9
    ...-a client's business process in areas such as human resources, procurement, customer care, and finance and administration. Thanks to the acquisition of PwCC and the formation of IBM Business Consulting Services, we generated nearly $3 billion in BTO signings during the fourth quarter of 2003 alone...

  • Page 10
    ... clients-with IBM's small-and-medium business segment alone growing 14 percent to outperform the market in 2003, adding $2.4 billion in revenue; and • incubated successful new high-growth businesses such as life sciences, digital media, application management services, e-business hosting services...

  • Page 11
    ... up our sleeves to bring IBM's values to life in our policies, procedures and daily operations. I've already touched on a number of things relating to clients and innovation, but our values of trust and personal responsibility are being managed just as seriously-from changes in how we measure and...

  • Page 12
    ... of business and technology and changing the way the organization operates -becoming what we at IBM call an on demand business. For IBM, this shared point of view shapes everything we do - from our work with clients to the way we innovate. We have a new understanding of the potential for business in...

  • Page 13
    ... going to be clear winners and losers.'" Jeffrey R. Immelt C H A I R M A N A N D C EO, G E Tracing its origin to Thomas Edison's 1878 electric light company, GE has grown to become the world's most valuable company, with a market capitalization of more than $132 billion and 315,000 employees. 11

  • Page 14
    ..., driving the growth and sustainability of the broader mobility industry. Nokia is dedicated to enhancing people's lives and productivity by providing easy-to-use and secure products like mobile phones, and solutions for imaging, games, media, mobile network operators and businesses. 12

  • Page 15
    ... company, actually. We have 89 million customers who expect us to be up 24 by 7, and their needs are constantly changing." AT IBM'S BUSINESS LEADERSHIP FORUM, NOV. 12, 2003 With 971 million listings in 2003, representing $24 billion in gross merchandise sales, eBay defines the category of online...

  • Page 16
    ...D C EO, U PS "On demand and synchronized commerce are about treating every customer - and for us, every package- as if it were the only one we have. With 13 million packages a day going to and from 9 million customers, that's a tall order. Bringing synchronized solutions to our customers will allow...

  • Page 17
    ...take advantage of market transitions." Cisco Systems, Inc., is the worldwide leader in networking for the Internet. The IBM and Cisco strategic alliance provides our clients with industry-leading, adaptive, integrated and secure network-enabled solutions to solve business problems, reduce complexity...

  • Page 18
    ... in 60 countries and clients in more than 200, 3M is one of the United States' largest global manufacturers and a diversified technology company that has become an icon of innovation. Its creativity spans many markets-from display and graphics to electronics and communications, health care, safety...

  • Page 19
    ..., jettison what's no longer relevant and build the new. And you have to maintain your essential character while doing it." HSBC is the world's second largest banking and financial services organization. Its international network, linked by innovative advanced technology, includes more than 9,500 of...

  • Page 20
    ...industries. What results? New business models. New ways to envision and build the physical environment. New ways of integrating knowledge and technology to enhance health and extend life. New ways to serve clients. New forms of creative expression. This is how IBM pursues innovation -and this is the...

  • Page 21
    ... marketing costs by 20 percent while improving marketing response rates by as much as 10 percent. And that means big money-in increased revenues and in savings. Still only a prototype, IBM's Customer Equity Management solution already has an 80 percent accuracy rate for predicting the eventual value...

  • Page 22
    ...to get closer to the craft. It felt like I'd been speaking a foreign language, and now, all of a sudden, the craftsman understands me. In this case, the computer is not dehumanizing; it's an interpreter." F RA N K G E H RY, A R C H I T ECT WA LT D I S N EY CO N C E RT H A L L , LOS A N G E L ES 20

  • Page 23
    ...than $ 10 billion of ibm services, hardware and software revenue, more than double the amount influenced in 2001. more than 90,000 business partners worldwide (consultants, integrators, software vendors, value-added resellers and distributors) generated more than 1/3 of ibm ' s revenue in 2003. 21

  • Page 24
    ... all ready for an early call at the ï¬,ip of a switch, anytime they're needed. So despite the complexity of the project, Threshold has been able to use IBM's Deep Computing Capacity On Demand Center to shorten its production cycle to 18 months-less than a third of the time it takes to produce most...

  • Page 25
    ..., FA R R I G H T ) M E E TS W I T H M E M B E R S O F T H E C R E AT I V E T E A M O F F O O D F I G H T ! (O P P OS I T E PAG E ) A S C E N E F R O M F O O D F I G H T ! "IBM on demand technology is allowing us to compete against people who may have more resources than we do, in the following very...

  • Page 26
    ... s business with governments worldwide has more than doubled -growing at a rate in 2003 more than five times the industry average in europe, the middle east and africa combined, and more than seven times the industry average in the americas. in the united states, ibm hardware, software and services...

  • Page 27
    ... everyone can use and trust. 02...THE MORE THINGS NEED TO CHANGE The project for a computerized land registry (livre foncier informatisé) is a good example of the integration of technology and law in effective e-government. New processes and supporting technology were created by the IBM team to...

  • Page 28
    ..., in 2003 the company entered an entirely new market-in Atlanta-by relying completely on its existing dispatch centers. 02. BETTER SERVICE WITH BETTER SCHEDULES BostonCoach leads in the van, limousine and sedan service industry for on-time pickup, but leadership used to come at a cost. Before...

  • Page 29
    on demand innovation services is IBM's first formal client-focused arm within IBM Research. clients can access any of ibm ' s 3,000 researchers worldwide who specialize in business transformation and technology consulting. BostonCoach yo u r r i d e i s h e r e "The real differentiation is in the...

  • Page 30
    ... . ( R I G H T ) D E N I S A . CO RT ES E , M . D. , P R ES I D E N T A N D C EO, M AYO C L I N I C "Wouldn't it be marvelous if I knew not just the exact location of the patient's cancer but its gene characteristics, and the outcomes with the last 500 patients at Mayo with cancer in that identical...

  • Page 31
    ... on ibm technology, including ibm middleware, server platforms and services. 01. 2,400 HEADS ARE BETTER THAN ONE The new system will provide Mayo Clinic's 2,400 physicians with differing levels of on demand access to medical data to support diagnoses and treatment decisions based on information...

  • Page 32
    ...Opening access to other people and their information creates relationships that didn't exist before, which then become engines of creation themselves. Crossing barriers -between languages or even areas of expertise -opens up opportunities for the creation of new economic, business and societal value...

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  • Page 42
    ...what needs to change to keep them motivated for tomorrow. In the end, they shaped and committed to three values that will guide everything we do. IBMers value: Dedication to every client's success • Innovation that matters -for our company and for the world • Trust and personal responsibility in...

  • Page 43
    ...108 RENTAL EXPENSE AND LEASE COMMITMENTS 109 STOCK-BASED COMPENSATION PLANS 109 RETIREMENT-RELATED BENEFITS 110 SEGMENT INFORMATION 117 SIGNIFICANT ACCOUNTING POLICIES ACCOUNTING CHANGES five-year comparison of selected financial data 122 selected quarterly data 123 board of directors and...

  • Page 44
    ... audit the financial statements of the company's Business Consulting Services Reporting Unit (which includes the consulting practice acquired from us as discussed in note C) for the year ended December 31, 2003 and the three months ended December 31, 2002, which statements reflect total revenues of...

  • Page 45
    ... AND SUBSIDIARY COMPANIES road map The financial section of the International Business Machines Corporation (IBM) 2003 Annual Report, consisting of this Management Discussion, the Consolidated Financial Statements that follow and the related notes thereto, comprises 81 pages of information. This...

  • Page 46
    ... analysis of IBM's continuing operations. On page 92, the company discusses this transaction and the accounting for the divestiture. management discussion snapshot (dollars and shares in millions except per share amounts) YR. TO YR. PERCENT/ MARGIN 2002 CHANGE FOR THE YEAR ENDED DECEMBER 31: 2003...

  • Page 47
    ... insight and technological innovation for enterprise clients. Over the past decade, IBM has been a leader in the IT market's shift of focus from selling hardware, software and services, to the creation of solutions to clients' business problems. During the early years of the Internet's entry into...

  • Page 48
    ... relationship management, financial management, human capital, business strategy and change, supply chain management and the transformation of business processes and operations. (Global Services) Customer financing - Lease and loan financing to clients and internal clients for terms generally...

  • Page 49
    ... INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES the client's premises or managed remotely at IBM's own facilities -and consulting about how to improve and strengthen the infrastructure and realize greater return on investment in it. Central to IBM's approach for building value...

  • Page 50
    ... Intellectual Property • Supply Chain Sales & Distribution Organization IBM offers its products through its Global Sales & Distribution organizations. Consistent with IBM's focus on Business Value, the company's global corps of account representatives combine a deep understanding of each client...

  • Page 51
    ... IBM's own supply chain as an on demand business operation, thereby turning what had previously been a cost/expense to be managed, into a strategic advantage for the company and, ultimately, for its clients. IBM spends nearly $39 billion annually in its supply chain, procuring materials and services...

  • Page 52
    ...and increasing market share. IBM is managing this risk by more closely linking its R&D organization to industry-specific and client-specific needs, as discussed on page 49. Open Standards Economic Environment and Corporate IT Spending Budgets If overall demand for hardware, software and services...

  • Page 53
    Management Discussion INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES year in review R ES U LTS O F CO N T I N U I N G O P E RAT I O N S Revenue (dollars in millions) YR. TO YR. PERCENT CHANGE CONSTANT CURRENCY FOR THE YEAR ENDED DECEMBER 31: 2003 2002 YR. TO YR. PERCENT ...

  • Page 54
    ...but as discussed on pages 49 and 50, the company will and has passed a portion of the savings to clients to improve competitive leadership and gain market share in key industry sectors. Expense (dollars in millions) FOR THE YEAR ENDED DECEMBER 31: 2003 2002 YR. TO YR. CHANGE Total expense and other...

  • Page 55
    Management Discussion INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES sg&a (dollars in millions) FOR THE YEAR ENDED DECEMBER 31: 2003 2002 YR. TO YR. CHANGE Selling, general and administrative expense: Selling, general and administrative-base Advertising Workforce reductions-...

  • Page 56
    ... company's cost and expense amounts in the Consolidated Statement of Earnings within the caption (e.g., Cost, SG&A, RD&E) relating to the job function of the individuals participating in the plans. (dollars in millions) FOR THE YEAR ENDED DECEMBER 31: 2003 2002 YR. TO YR. CHANGE Retirement-related...

  • Page 57
    ... INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES On January 1, 2003, the company reduced its expected long-term return assumption on the U.S. IBM Personal Pension Plan's (PPP) assets from 9.5 percent to 8 percent. On December 31, 2002, the company lowered its discount rate...

  • Page 58
    ... to lower labor costs, as a result of improved product serviceability and increased automation, as well as lower parts costs. Hardware (dollars in millions) YR. TO YR. PERCENT 2002 CHANGE FOR THE YEAR ENDED DECEMBER 31: 2003 Hardware Revenue: Systems Group zSeries iSeries pSeries xSeries Storage...

  • Page 59
    ... sales, marketing, development and ISV programs, to a greater focus on industry solutions and business transformations. Revenue from Enterprise Investments increased 4.2 percent (down 5.1 percent at constant currency) in 2003 versus 2002. The decline was attributable to demand for product life...

  • Page 60
    ...the Consolidated Statement of Cash Flows on page 79, are summarized in the table below. These amounts include the cash flows associated with the company's Global Financing business. See pages 69 to 73. (dollars in millions) FOR THE YEAR ENDED DECEMBER 31: 2003 2002 Non-current assets Long-term debt...

  • Page 61
    ... described in the Global Financing balance sheet on pages 70, 72 and 73. During the fourth quarter of 2002, the company increased its non-Global Financing debt to position itself for potential year-end pension funding levels and the possible acquisition of Rational, especially given the cash paid...

  • Page 62
    ... Services, Hardware and Global Financing, partially offset by Software. In Global Services, a 1.5 point decline was due to continued price pressures given current industry demand, higher investment costs associated with the early stages of an SO contract, and the rescoping of several outsourcing...

  • Page 63
    ... The company noted two trends in 2002. First, clients were spending more time on the selection process for software solutions and second, clients were more inclined to negotiate smaller software arrangements, which are perceived to provide a faster return on investment. The company's focus on client...

  • Page 64
    ...company's Retirement and nonpension postretirement benefit obligations primarily attributable to the required accounting for the unfunded status of the non-U.S. pension plans, an increase in other accruals due to the 2002 actions taken by the company as described in note S, "2002 Actions," on pages...

  • Page 65
    ... route to market. The new Lotus workplace messaging platform became generally available in late November 2003 and received positive reaction from both clients and industry analysts. Operating system software growth will be dependent, in part, on the growth of the underlying hardware sales. See page...

  • Page 66
    ... long-term return on PPP assets at 8 percent, despite the strong performance of the plan assets in 2003. With similar overall trends in these assumptions worldwide, as well as the impact of the recent years' changes in the market value of plan assets, the year-to-year impact from retirement-related...

  • Page 67
    ... with non-U.S. pension plans. The projected payments beyond 2008 are not currently determinable. See note W, "Retirement-Related Benefits," on pages 110 to 115 for additional information on the non-U.S. plans' investment strategies and expected contributions. Purchase obligations include all...

  • Page 68
    ... the actual return on plan assets and expected long-term return on plan assets are recognized in the calculation of net periodic pension cost/(income) over five years. As described on pages 110 through 115, if the fair value of the pension plan's assets is below the plan's ABO, the company will be...

  • Page 69
    ... V alue and Client Demand The company generally offers three-year warranties for its personal computer products and one-year warranties on most of its other products. The company estimates the amount and cost of future warranty claims for its current period sales. These estimates are used to record...

  • Page 70
    ...the fair values of the company's debt and other financial instruments. The financial instruments that are included in the sensitivity analysis comprise all of the company's cash and cash equivalents, marketable securities, long-term non-lease receivables, investments, long-term and short-term debt...

  • Page 71
    ..., the information presented in this section is consistent with this separate company view. The mission of Global Financing is to generate a return on equity. It also facilitates the acquisition of IBM hardware, software and services. Global Financing invests in financing assets, manages the...

  • Page 72
    ...support the Global Financing business. Sources and Uses of Funds The primary use of funds in Global Financing is to originate customer and commercial financing assets. Customer financing assets for end users consist primarily of IBM hardware, software and services, but also include non-IBM equip...

  • Page 73
    ... INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES ment, software and services to meet IBM clients' total solutions requirements. Customer financing assets are primarily sales-type, direct financing and operating leases for equipment as well as loans for software and services...

  • Page 74
    ...the portfolio. See note A, "Significant Accounting Policies," on page 85 for the company's accounting policy for residual values. Residual V alue (dollars in millions) TOTAL AT DECEMBER 31: 2002 Sales of equipment, which are primarily sourced from equipment returned at end of lease, represented 40...

  • Page 75
    ... Financing's mission of supporting IBM's hardware, software and services businesses, originations for both customer and commercial finance businesses will be dependent upon the overall demand for IT hardware, software and services, as well as the customer participation rates. Interest rates and the...

  • Page 76
    Consolidated Statement of Earnings INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES (dollars in millions except per share amounts) FOR THE YEAR ENDED DECEMBER 31: NOTES 2003 2002 2001 Revenue: Global Services Hardware Software Global Financing Enterprise Investments/Other Total...

  • Page 77
    ... Statement of Financial Position INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES (dollars in millions) AT DECEMBER 31: NOTES 2003 2002 * Assets Current assets: Cash and cash equivalents Marketable securities Notes and accounts receivable-trade, net of allowances Short-term...

  • Page 78
    Consolidated Statement of Stockholders' Equity INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES (dollars in millions) ACCUMULATED GAINS AND (LOSSES) NOT EMPLOYEE AFFECTING BENEFITS RETAINED TRUST EARNINGS PREFERRED STOCK COMMON STOCK RETAINED EARNINGS TREASURY STOCK TOTAL ...

  • Page 79
    Consolidated Statement of Stockholders' Equity INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES (dollars in millions) ACCUMULATED GAINS AND (LOSSES) NOT AFFECTING RETAINED EARNINGS COMMON STOCK RETAINED EARNINGS TREASURY STOCK TOTAL 2002 * Stockholders' equity, January 1, ...

  • Page 80
    Consolidated Statement of Stockholders' Equity INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES (dollars in millions) ACCUMULATED GAINS AND (LOSSES) NOT AFFECTING RETAINED EARNINGS COMMON STOCK RETAINED EARNINGS TREASURY STOCK TOTAL 2003 Stockholders' equity, January 1, ...

  • Page 81
    ... of plant, rental machines and other property Investment in software Purchases of marketable securities and other investments Proceeds from disposition of marketable securities and other investments Divestiture of businesses Acquisition of businesses Net Cash Used in Investing Activities from...

  • Page 82
    ...(FASB) Interpretation No. 46 (FIN 46) and related interpretations (see note B, "Accounting Changes," on page 86), created after January 31, 2003, are included in the Consolidated Financial Statements. Investments in business entities in which the company does not have control, but has the ability to...

  • Page 83
    ... receivables are expected to be billed and collected generally within four months, rarely exceeding nine months. The largest driver of the increase in unbilled accounts receivable is the favorable impacts from currency translation. Hardware basis over the period that the client is using the program...

  • Page 84
    ...of the company had compensation cost for stock options granted and for employee stock purchases under the ESPP (see note V, "Stock-Based Compensation Plans," on pages 109 and 110) been determined in accordance with the fair value-based method prescribed by Statement of Financial Accounting Standards...

  • Page 85
    Notes to Consolidated Financial Statements INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES (dollars in millions except per share amounts) FOR THE YEAR ENDED DECEMBER 31: 2003 2002 2001 Net income applicable to common stockholders, as reported Add: Stock-based employee ...

  • Page 86
    ...sheet date. For the majority of financial instruments including most derivatives, long-term investments and long-term debt, standard market conventions and techniques such as discounted cash flow analysis, option pricing models, replacement cost and termination cost are used to determine fair value...

  • Page 87
    ... non-current investments are included in Investments and sundry assets. The company's Marketable securities, including certain non-equity method alliance investments, are considered available for sale and are reported at fair value with changes in unrealized gains and losses, net of applicable taxes...

  • Page 88
    ... stock and would then share in the net income of the company. See note T, "Earnings Per Share of Common Stock," on page 108 for additional information. B accounting changes STA N DA R DS I M P L E M E N T E D In December 2003, the FASB revised SFAS No. 132, "Employers' Disclosures about Pensions...

  • Page 89
    ... entered into or modified after December 31, 2002. The company has adopted the disclosure requirements of FIN 45 (see note A, "Significant Accounting Policies," on page 86 under "Product Warranties," in note O, "Contingencies and Commitments," on pages 101 to 103) and applied the recognition and...

  • Page 90
    ...nite life intangible assets. The company adopted SFAS No. 142 on January 1, 2002. The new rules also prohibit the amortization of goodwill associated with business combinations that closed after June 30, 2001. In accordance with SFAS No. 141, the unamortized balance for acquired assembled workforce...

  • Page 91
    ... included in the company's Consolidated Financial Statements. The company merged Rational's business operations and employees into the company's Software segment as a new division and brand. The acquisition was accounted for as a purchase transaction, and accordingly, the assets and liabilities of...

  • Page 92
    ... strategy, industry-based consulting, process integration and application management. The company paid $3,474 million of the cost related to the acquisition of PwCC in 2002. The balance was paid in 2003. The purchase price allocation disclosed in the company's 2002 Annual Report, which was based...

  • Page 93
    ... shares of IBM common stock and $328 million in notes convertible into restricted shares of IBM common stock. In connection with the acquisition, the company incurred approximately $196 million of pre-tax, one-time compensation costs for certain PwCC partners and employees. This amount relates...

  • Page 94
    ...part of the HDD business, resulting in a net cash inflow in 2002 related to the HDD transaction of $1,170 million. The company Cash and cash equivalents, marketable securities, notes and other accounts receivable and other investments are financial assets with carrying values that approximate fair...

  • Page 95
    ... the Consolidated Statement of Financial Position. See note H, "Investments and Sundry Assets," on page 94. E inventories (dollars in millions) AT DECEMBER 31: 2003 2002 Net investment in sales-type leases is for leases that relate principally to IBM equipment and are generally for terms ranging...

  • Page 96
    ... Statements INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES H investments and sundry assets (dollars in millions) AT DECEMBER 31: 2003 2002 * (dollars in millions) AT DECEMBER 31, 2002 GROSS CARRYING AMOUNT NET CARRYING AMOUNT Deferred taxes Alliance investments: Equity...

  • Page 97
    Notes to Consolidated Financial Statements INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES J sale and securitization of receivables The company periodically sells receivables through the securitization of loans, leases and trade receivables. The company retains servicing ...

  • Page 98
    ... Financial Statements INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES Annual contractual maturities on long-term debt outstanding, including capital lease obligations, at December 31, 2003, are as follows: (dollars in millions) (dollars in millions) AT DECEMBER 31: 2003 2002...

  • Page 99
    ... match the exposures relating to this employee compensation obligation, these derivatives are linked to the total return of certain broad equity market indices and/or the total return of the company's common stock. These derivatives are recorded at fair value with gains or losses also reported in SG...

  • Page 100
    ... INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES R I S K M A N AG E M E N T P R O G RA M (dollars in millions) HEDGE DESIGNATION NET INVESTMENT NON-HEDGE/ OTHER AT DECEMBER 31, 2003 FAIR VALUE CASH FLOW Derivatives-net asset/(liability): Debt risk management Long-term...

  • Page 101
    ...the Consolidated Statement of Financial Position. The workforce accruals primarily relate to the company's Global Services business. The non-current portion of the liability relates to terminated employees who are no longer working for the company, but who were granted annual payments to supplement...

  • Page 102
    ...to time, depending on market conditions. The company also repurchased 291,921 common shares at a cost of $24 million and 189,797 common shares at a cost of $18 million in 2003 and 2002, respectively, as part of other stock compensation plans. In 1997, the company created an employee benefits trust...

  • Page 103
    ... period Net change in unrealized gains/(losses) on marketable securities * Includes writedowns of $7 million and $36 million in 2003 and 2002, respectively. $«4 $«(13) (3) * $«7 3* $«(16) The following table shows the company's investments' gross unrealized losses and fair value, aggregated...

  • Page 104
    ... with the staff's investigation of Dollar General Corporation, which as noted above, is a client of IBM's Retail Stores Solutions unit. It is IBM's understanding that an employee in IBM's Sales & Distribution unit also received a Wells Notice from the SEC in connection with this matter. The Wells...

  • Page 105
    ...with the company's loans receivable securitization program. See note J, "Sale and Securitization of Receivables," on page 95. Changes in the company's warranty liability balance are illustrated in the following table. (dollars in millions) 2003 2002 P taxes (dollars in millions) FOR THE YEAR ENDED...

  • Page 106
    Notes to Consolidated Financial Statements INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES A reconciliation of the company's continuing operations effective tax rate to the statutory U.S. federal tax rate is as follows: FOR THE YEAR ENDED DECEMBER 31: 2003 2002 2001 Statutory ...

  • Page 107
    ... and direct its Microelectronics business to the high-end foundry, Application Specific Integrated Circuits (ASICs) and standard products, while creating a technology services business. A major part of the actions related to a significant reduction in the company's manufacturing capacity for...

  • Page 108
    ... and equipment. This loss was recorded in Other (income) and expense in 2002. This transaction closed in the fourth quarter of 2002. The company entered into a limited supply agreement with EIT for future products, and it will also lease back, at fair market value rental rates, approximately...

  • Page 109
    ... PwCC employees all of whom left the company as of December 31, 2003 ($48 million in the table above). These costs were included as part of the liabilities assumed for purchase accounting in 2002. (b) The majority of the workforce reductions relate to the company's Global Services business. The...

  • Page 110
    Notes to Consolidated Financial Statements INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES T earnings per share of common stock The following table sets forth the computation of basic and diluted earnings per share of common stock. FOR THE YEAR ENDED DECEMBER 31: 2003 2002 ...

  • Page 111
    ... in compensation expense of $117 million, $183 million and $170 million in 2003, 2002 and 2001, respectively. Stock Option Grants Stock options are granted to employees and directors at an exercise price equal to the fair market value of the company's stock at the date of grant. Generally, options...

  • Page 112
    ... "Stock-Based Compensation" on pages 82 and 83, in note A, "Significant Accounting Policies," for the pro forma disclosures of net income and earnings per share required under SFAS No. 123. retirement-related benefits IBM offers defined benefit pension plans, defined contribution pension plans...

  • Page 113
    ...assets are developed in conjunction with external advisors, and take into account long-term expectations for future returns and investment strategy. Amounts are tested for reasonableness against their historical averages, usually over a ten year period. The discount rate assumptions used for pension...

  • Page 114
    Notes to Consolidated Financial Statements INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES IBM Savings Plan - U.S. regular, full-time and part-time employees are eligible to participate in the IBM Savings Plan, which is a tax-qualified defined contribution plan under section ...

  • Page 115
    ... and on page 116 (material nonpension postretirement plan) and the totals listed in the Consolidated Statement of Financial Position and Consolidated Statement of Stockholders' Equity, relate to the non-material plans. The increase in the company's Prepaid pension asset balance from 2002 to 2003 was...

  • Page 116
    ... used to determine the net periodic pension cost/(income) for principal pension plans during the year follow: U.S. PLANS WEIGHTED-AVERAGE ASSUMPTIONS FOR YEARS ENDED DECEMBER 31: 2003 2002 2001 2003 NON-U.S. PLANS 2002 2001 Discount rate Expected long-term return on plan assets Rate of compensation...

  • Page 117
    Notes to Consolidated Financial Statements INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES P L A N ASS E TS The company's pension plan weighted-average asset allocations at December 31, 2003 and 2002 and target allocation for 2004, by asset category, are as follows: U.S. Plans...

  • Page 118
    ...) 2003 2002 Change in benefit obligation: Benefit obligation at beginning of year Service cost Interest cost Actuarial losses/(gains) Direct benefit payments Benefit obligation at end of year Change in plan assets: Fair value of plan assets at beginning of year Actual return on plan assets...

  • Page 119
    Notes to Consolidated Financial Statements INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES P L A N ASS E TS The company's nonpension postretirement benefit plan assets at December 31, 2003 and 2002 are comprised of short-term fixed-income investments. This plan is not funded...

  • Page 120
    ...-tax income). These results are used, in part, by management, both in evaluating the performance of, and in allocating resources to, each of the segments. M A N AG E M E N T SYST E M S EG M E N T V I EW (dollars in millions) HARDWARE PERSONAL SYSTEMS GROUP FOR THE YEAR ENDED DECEMBER 31: GLOBAL...

  • Page 121
    Notes to Consolidated Financial Statements INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES Reconciliations to IBM as Reported (dollars in millions) FOR THE YEAR ENDED DECEMBER 31: 2003 2002 2001 Revenue: Total reportable segments Other revenue and adjustments Elimination of ...

  • Page 122
    Notes to Consolidated Financial Statements INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES M A N AG E M E N T SYST E M S EG M E N T V I EW (dollars in millions) HARDWARE PERSONAL SYSTEMS GROUP GLOBAL FOR THE YEAR ENDED DECEMBER 31: SERVICES SYSTEMS GROUP TECHNOLOGY GROUP ...

  • Page 123
    ...securities Notes and accounts receivable Deferred tax assets Plant, other property and equipment Pension assets Other Total IBM consolidated $«««68,347 $«63,824 $«64,720 (5,613) (5,061) (4,884) outsourcing of client's design team work, and technology and manufacturing consulting services...

  • Page 124
    ... Discontinued operations Total Basic: Continuing operations Discontinued operations Total Cash dividends paid on common stock Per share of common stock Investment in plant, rental machines and other property Return on stockholders' equity AT END OF YEAR: $«««89,131 $«81,186 $«83,067 $«85...

  • Page 125
    ... is computed using the weighted-average number of shares outstanding during the year. Thus, the sum of the four quarters' EPS does not equal the full-year EPS. + Does not total due to rounding. ++ The stock prices reflect the high and low prices for IBM's common stock on the New York Stock Exchange...

  • Page 126
    ... Enterprise On Demand Transformation and Information Technology STEPHEN M. WARD, JR. Senior Vice President Marketing J. MICHAEL LAWRIE Senior Vice President Research Senior Vice President Integrated Supply Chain DANIEL E. O'DONNELL Senior Vice President and General Manager Personal Systems Group...

  • Page 127
    ...MEETING Printing: Anderson Lithograph Topics featured in this Annual Report can be found via the IBM home page on the Internet (www.ibm.com). Financial results, news on IBM products, services and other activities can also be found via that address. Stockholders of record can receive online account...

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