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ManagementDiscussion
INTERNATIONALBUSINESSMACHINESCORPORATION ANDSUBSIDIARYCOMPANIES
_43
EmployeesandRelatedWorkforce
PERCENTAGECHANGES
FORTHEYEARENDEDDECEMBER31: 2005 2004 2003 2005-04 2004-03
IBM/whollyownedsubsidiaries 329,373 329,001 319,273 0.1 3.0
Less-than-whollyownedsubsidiaries 12,377 19,051 18,189 (35.0) 4.7
Complementary 24,595 21,225 17,695 15.9 19.9
Employees at IBM and its wholly owned subsidiaries in 2005
were essentiallythesamelevelasthe prioryear. Thecompany
continuestoinvestinGlobalServicesandSoftware througha
combinationofhiring and acquisitions. IBM also continuesto
rebalanceitsworkforcetoimprovethecompany’scompetitive-
ness in the marketplace, as well as to withdraw from certain
businesses—notablythe divestiture ofthePersonalComputing
businessinApril2005.
In less-than-wholly owned subsidiaries, the number of
employeesdecreasedfromyear-end2004.Thedecreaseispri-
marily due to the conversion of the International Information
Products Company in China to a wholly-owned unit of IBM’s
Personal Computing business that was subsequently sold to
Lenovoin2005.
Thecompany’scomplementaryworkforceisanapproxima-
tion of equivalent full-time employees hired under temporary,
part-time and limited-term employment arrangements to meet
specificbusinessneedsinaflexibleandcost-effectivemanner.
GlobalFinancing
DescriptionofBusiness
GlobalFinancingisabusinesssegmentwithinIBM that is meas-
uredasifitwereastandaloneentity.Accordingly,theinforma-
tion presented in this section is consistent with this separate
companyview.
ThemissionofGlobalFinancingistogenerateareturnon
equity andto facilitate theclient’sacquisitionofIBMhardware,
softwareandservices.
GlobalFinancinginvestsinfinancingassets,managesthe
associatedrisks,andleverageswithdebt,allwiththeobjective
of generating consistently strong returns on equity. The focus
on IBM products and IBM clients mitigates the risks normally
associatedwithafinancingcompany.GlobalFinancinghasthe
benefitofbothadeepknowledgeofitsclientbaseandaclear
insightintotheproductsthatarebeingleased.Thiscombination
allowsGlobalFinancingtoeffectivelymanagetwoofthemajor
risks (credit and residual value) that are normally associated
withfinancing.
GlobalFinancingcomprisesthreelinesofbusiness:
• Client financing provides lease and loan financing to end
users and internal clients for terms generally between two
andsevenyears.Internalfinancingispredominantlyinsup-
port of Global Services’ long-term client service contracts.
GlobalFinancingalsofactorsaselectedportionofthecom-
pany’saccountsreceivable,primarilyforcashmanagement
purposes.Alloftheseinternalfinancingarrangementsareat
arm’s-lengthratesandarebaseduponmarketconditions.
• Commercialfinancingprovidesprimarilyshort-terminventory
and accounts receivable financing to dealers and remar-
keters ofITproducts.
• Remarketing sells and leases used equipment to new or
existing clients bothexternallyandinternally. Thisequipment
is primarily sourced from the conclusion of lease transac-
tions. Externally-remarketedequipmentrevenuerepresents
salesorleasestoclientsandresellers.Internally-remarketed
equipment revenue primarily represents used equipment
thatissoldorleasedinternallytotheHardwareandGlobal
Services segments. The Hardware segment will also sell
the equipment that it purchases from Global Financing to
external clients.
Inadditiontothestrengthoftheeconomyanditsimpactoncor-
porateITbudgets,keydrivers ofGlobalFinancing’sresultsare
interest rates and originations. Interest rates directly impact
Global Financing’s business by increasing or decreasing both
financing revenue and the associated borrowing costs.
Originations, which determine the asset base of Global
Financing’s annuity-like business, are impacted by IBM’s non-
GlobalFinancingsalesvolumesandGlobalFinancing’sparticipa-
tionrates.ParticipationratesarethepropensityofIBM’sclientsto
financetheirpurchasesthroughGlobalFinancinginlieuofpaying
IBMup-frontcashorfinancingthroughathirdparty.
FOREIGN CURRENCY EXCHANGE RATE RISK
AtDecember31,2005,a10percentweakerU.S.dollaragainst
foreigncurrencies,withallothervariablesheldconstant,would
resultinadecreaseinthefairvalueofthecompany’sfinancial
instruments of $352 million as compared with a decrease of
$692 million at December 31, 2004. Conversely, a 10 percent
stronger U.S. dollar against foreign currencies, with all other
variables held constant, would result in an increase in the fair
value of the company’s financial instruments of $376 million
comparedwith$679 millionatDecember31,2004.
Financingrisks
Seethe“GlobalFinancing-DescriptionofBusiness” below fora
discussionofthefinancingrisksassociatedwiththecompany’s
Global Financing business and management’s actions to miti-
gatesuchriskswhilestrivingfor consistentlystrongreturns on
GlobalFinancing’sequity.