IBM 2005 Annual Report Download - page 96
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NotestoConsolidatedFinancialStatements
INTERNATIONALBUSINESSMACHINESCORPORATION ANDSUBSIDIARYCOMPANIES
_95
NONPENSIONPOSTRETIREMENTBENEFITPLANEXPECTEDPAYMENTS
Thefollowingtablereflectsthetotalexpectedbenefitpaymentstodefinedbenefit nonpensionpostretirement planparticipants,as
wellastheexpectedreceiptofthecompany’sshareoftheMedicaresubsidydescribed below.Thesepaymentshavebeenestimated
basedonthesameassumptionsusedtomeasurethecompany’s benefitobligation atyear end.
(Dollarsinmillions)
LESS: U.S. PLANS TOTAL
EXPECTED EXPECTED
U.S. PLANS MEDICARE BENEFIT
PAYMENTS SUBSIDY PAYMENTS
2006 $««««539 $«29 $««««510
2007 525 32 493
2008 510 35 475
2009 496 38 458
2010 482 40 442
2011-2015 «2,287 «««42 «2,245
MedicarePrescriptionDrugAct
InconnectionwiththeMedicarePrescriptionDrugImprovement
and Modernization Act of 2003, the company is expected
to receive a federal subsidy of approximately $400 million to
subsidizetheprescriptiondrugcoverageprovidedbytheU.S.
nonpensionpostretirementbenefitplanoveraperiodofapprox-
imately 6 years beginning in 2006. The company will use the
subsidytoreducebothcompanyandparticipantcontributions
for prescription drug related coverage. Accordingly, approxi-
mately$216millionofthesubsidywillbeusedbythecompany
toreduceitsobligationandexpenserelatedtotheU.S.nonpen-
sion postretirement benefit plan. Further, the company will
contributetheremainingsubsidy of $184milliontothisplanin
ordertoreducecontributionsrequiredbytheparticipants.The
companyexpectstobeginreceivingthesubsidyin2006.
InaccordancewiththeprovisionofFASBStaffPositionFSP
FAS106-2,“AccountingandDisclosureRequirementsRelated
to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003,” the company has included the
impactofitsportionofthesubsidyinthedeterminationofaccu-
mulated postretirement benefit obligation for the U.S. nonpen-
sionpostretirementbenefitplanfortheperiodendedDecember
31, 2005, the measurement date. The impact of the subsidy
resultedinareductioninthe benefitobligationofapproximately
$188million withnoresultingimpactto2005netperiodiccost.
However, theimpact of thesubsidy will decrease net periodic
costoverthetermofthesubsidy.
W.SegmentInformation
ThecompanyusesbusinessinsightanditsportfolioofITcapa-
bilities to create client- and industry-specific information solu-
tions.Thecompanyoperatesprimarilyinasingleindustryusing
several segments that create value by offering solutions that
include,eithersingularlyorinsomecombination,services,soft-
ware,hardwareandfinancing.
Organizationally,thecompany’smajoroperationscomprisea
GlobalServices segment;aSoftwaresegment;a predominantly
hardware product segment—Systems and Technology Group; a
Global Financing segment; and an Enterprise Investments seg-
ment.The segments representcomponents of thecompany for
whichseparatefinancialinformationisavailablethatisutilizedon
aregularbasisbythechiefexecutiveofficerindetermininghow
toallocate thecompany’sresourcesandevaluateperformance.
Thesegmentsaredeterminedbasedonseveralfactors,including
clientbase,homogeneityofproducts,technology,deliverychan-
nelsandsimilareconomiccharacteristics.
Informationabouteachsegment’sbusinessandtheprod-
ucts and services that generate each segment’s revenue is
located in the “Description of Business” section of the
ManagementDiscussiononpage 19and“SegmentDetails,”on
pages 27 to 30.
In2003,thecompanyrenamedallofitsHardwaresegments
withoutchangingtheorganizationofthesesegments.TheEnter-
priseSystemssegmentwasrenamedtheSystemsGroupseg-
ment,thePersonalandPrintingSystemssegmentwasrenamed
the Personal Systems Group segment and the Technology
segmentwasrenamedtheTechnologyGroupsegment.
In2004,the company combinedthe Systems Groupseg-
ment and the Technology Group segment and formed the
SystemsandTechnologyGroupsegment.
In the second quarter of 2005, the company sold its
PersonalComputingbusiness whichwaspreviouslyapartofthe
Personal Systems Group. The two remaining units of the
Personal Systems Group, Retail Store Systems and Printing
Systems, were combined with the Systems and Technology
Group. Personal Computing Division financial results are dis-
playedaspartofthesegmentdisclosures,inamannerconsis-
tentwiththesegmentdisclosures. Previouslyreportedsegment
informationhasbeenrestatedforallperiodspresentedtoreflect
thechangesinthecompany’sreportablesegments.
Segmentrevenueandpre-taxincomeincludetransactions
between the segments that are intended to reflect an arm’s-
lengthtransferprice.Hardwareandsoftwarethatisusedbythe
Global Services segment in outsourcing engagements are
mostly sourced internally from the Systems and Technology
Groupand Softwaresegments.FortheinternaluseofITserv-
ices,the Global Services segmentrecoverscost,aswell as a