IBM 2005 Annual Report Download - page 97
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NotestoConsolidatedFinancialStatements
INTERNATIONALBUSINESSMACHINESCORPORATION ANDSUBSIDIARYCOMPANIES
96_ NotestoConsolidatedFinancialStatements
reasonablefee,reflectingthearm’s-lengthvalueofprovidingthe
services.TheGlobalServicessegmententersintoarm’s-length
leases at prices equivalent to market rates with the Global
Financing segment to facilitate the acquisition of equipment
used in services engagements. Generally, all internal transac-
tionpricesarereviewedandresetannually,ifappropriate.
The company uses shared resources concepts to realize
economiesofscaleandefficientuseofresources.Thus,aconsid-
erableamountofexpenseissharedbyallofthecompany’sseg-
ments.Thisexpenserepresentssalescoverage,marketingand
support functions such as Accounting, Treasury, Procurement,
Legal, Human Resources, and Billing and Collections. Where
practical,sharedexpensesareallocatedbased on measurable
driversofexpense,e.g.,headcount. Whenaclearandmeasura-
bledrivercannotbeidentified,sharedexpensesareallocated
onafinancialbasisthatisconsistentwiththecompany’sman-
agementsystem;e.g.,imageadvertisingisallocatedbasedon
the gross profits of the segments. The unallocated corporate
amountsarisingfromcertain divestitures,indirectinfrastructure
reductions, miscellaneoustaxitemsandtheunallocatedcorpo-
rateexpensepoolarerecordedinnetincomebutarenotallo-
catedtothesegments.
The following tables reflect the results of continuing opera-
tionsofthesegmentsand the PersonalComputingDivision con-
sistent with the company’s management system. These results
are not necessarily a depiction that is in conformity with GAAP;
e.g.,employeeretirementplancostsaredevelopedusingactuar-
ial assumptions on a country-by-country basis and allocated to
the segments based on headcount. Different amounts could
resultifactuarialassumptionsthatareuniquetothesegmentwere
used. Performance measurement is based on income before
incometaxes(pre-taxincome).Theseresultsareused,inpart,by
management,bothinevaluatingtheperformanceof,andinallo-
catingresourcesto,eachofthesegments.Asdiscussedinnote
U,“Stock-BasedCompensation” onpages83to85,thecompany
adopted the fair value method of accounting for stock-based
awards granted to employees. The following segments’ pre-tax
incomeincludestheimpactofthisaccountingchange.
ManagementSystemSegmentView
(Dollarsinmillions)
SYSTEMSAND PERSONAL
GLOBAL TECHNOLOGY GLOBAL ENTERPRISE COMPUTING TOTAL
FORTHEYEARENDEDDECEMBER31: SERVICES GROUP SOFTWARE FINANCING INVESTMENTS DIVISION SEGMENTS
2005:
Externalrevenue $«47,357 $«20,981 $«15,753 $«2,401 $«1,203 $«««2,876 $«««90,571
Internalrevenue 2,891 1,118 1,970 1,506 8 33 7,526
Totalrevenue $«50,248 $«22,099 $«17,723 $«3,907 $«1,211 $«««2,909 $«««98,097
Pre-taxincome/(loss) $«««3,382 $«««1,966 $«««4,882 $«1,583 $«««(145) $«««««(165) $«««11,503
Revenueyear-to-yearchange 1.8% 4.9% 4.9% 0.3% 1.9% NM (5.0) %
Pre-taxincomeyear-to-yearchange (15.8) % (8.1) % 18.0% 8.6% 27.1% NM (0.4) %
Pre-taxincomemargin 6.7% 8.9% 27.5% 40.5% (12.0) % NM 11.7%
2004:
Externalrevenue $«46,213 $«19,973 $«15,094 $«2,607 $«1,180 $«10,737 $«««95,804
Internalrevenue 3,131 1,095 1,805 1,287 8 129 7,455
Totalrevenue $«49,344 $«21,068 $«16,899 $«3,894 $«1,188 $«10,866 $«103,259
Pre-taxincome/(loss) $«««4,018 $«««2,140 $«««4,138 $«1,458 $«««(199) $«««««««(10) $«««11,545
Revenueyear-to-yearchange 8.5% 8.6% 6.1% (5.6) % 11.0% 14.4% 8.1%
Pre-taxincomeyear-to-yearchange 5.1% 25.6% 21.7% 26.6% 26.3% 97.1% 22.1%
Pre-taxincomemargin 8.1% 10.2% 24.5% 37.4% (16.8) % (0.1) % 11.2%
2003:
Externalrevenue $«42,635 $«18,505 $«14,311 $«2,827 $«1,065 $«««9,351 $«««88,694
Internalrevenue 2,837 890 1,613 1,300 5 146 6,791
Totalrevenue $«45,472 $«19,395 $«15,924 $«4,127 $«1,070 $«««9,497 $«««95,485
Pre-taxincome/(loss) $«««3,823 $«««1,704 $«««3,399 $«1,152 $«««(270) $«««««(349) $«««««9,459
Revenueyear-to-yearchange 16.0% 2.4% 11.4% (0.4) % 4.3% 3.8% 10.0%
Pre-taxincomeyear-to-yearchange 31.1% NM 9.4% 24.8% 14.6% (53.7) % 39.4%
Pre-taxincomemargin 8.4% 8.8% 21.3% 27.9% (25.2) % (3.7) % 9.9%
NM—NotMeaningful