IBM 2006 Annual Report Download - page 14

ROAD MAP
The financial section of the International Business Machines
Corporation (IBM or the company) 2006 Annual Report, consisting
of this Management Discussion, the Consolidated Financial Statements
that follow and the notes related thereto, comprises 108 pages of
information. This Road Map is designed to provide the reader
with some perspective regarding the information contained in the
financial section.
IBM’S BUSINESS MODEL
The company’s business model is built to support two principal goals:
helping clients succeed in delivering business value by becoming more
innovative, efficient and competitive through the use of business insight
and information technology (IT) solutions; and providing long-term
value to shareholders. In addition to these goals, the company is com-
mitted to its employees and the communities in which it operates.
In support of these objectives, the business model has been devel-
oped over time through strategic investments in capabilities and
technologies that have the best long-term growth and profitability
prospects based on the value they deliver to clients.
The company’s strategy is to focus on the high-growth, high-value
segments of the IT industry. The company’s broad capabilities include
services, software, hardware, fundamental research, financing and the
component technologies used to build larger systems. These global
capabilities are combined to provide business insight and solutions in
the enterprise computing space.
The business model is flexible, and allows for periodic rebalancing.
In 2006, 13 acquisitions were completed, all focused on expanding the
company’s software and services capabilities, at an aggregate cost of
approximately $4.8 billion. In January 2007, the company announced
its intent to form a joint venture with Ricoh Company based on the
company’s Printing Systems business.
The business model, supported by the company’s long-term
financial model, enables the company to deliver consistently strong
earnings, cash flows and high returns on invested capital in changing
economic environments.
TRANSPARENCY
Transparency is a primary goal of successful financial reporting. The
following are the key elements found in this year’s Annual Report.
• The company, in accordance with Section 404 of the Sarbanes-Oxley Act
of 2002, conducted an evaluation of its internal control over financial
reporting and concluded that the internal control over financial reporting
was effective as of December 31, 2006.
• The Management Discussion is designed to provide readers with a
view of the company’s results and certain factors that may affect future
prospects from the perspective of the company’s management. Within
the “Management Discussion Snapshot,” on pages 14 to 15, the key
messages and details will give readers the ability to quickly assess the
most important drivers of performance within this brief overview.
• The Management Discussion reflects the company’s continued and
improving strength in providing client- and industry-specific solutions
utilizing its broad capabilities. The sections on “Description of the
Business” on page 15, “Results of Continuing Operations” on page 22,
“Financial Position” on page 32, and “Looking Forward” on page 41,
are all written from the perspective of the consolidated entity. Detailed
analysis for each of the company’s segments is also included and appears
on pages 29 to 32.
• Global Financing is a business segment within the company that is
measured as if it were a standalone entity. A separate “Global
Financing” section beginning on page 49 is not included in the consoli-
dated perspective that is referred to above. This section is separately
presented given this segment’s unique impact on the company’s financial
condition and leverage.
• Effective December 31, 2006, the company adopted the provisions
of Statement of Financial Accounting Standards (SFAS) No. 158,
“Employer’s Accounting for Defined Benefit Pension and Other
Postretirement Plans, an amendment to FASB Statements No. 87,
88, 106, and 132(R).” SFAS No. 158 requires that the funded status
of the company’s pension and nonpension postretirement benefit plans
be recognized as an asset or a liability in the Consolidated Statement of
Financial Position, the recognition of any changes in that funded status
in the year in which the changes occur and the recognition of previously
unrecognized gains/(losses), prior service costs/(credits) and transition
assets as a component of Accumulated gains and (losses) not affecting
retained earnings in the Consolidated Statement of Stockholders’ Equity.
The adoption of SFAS No. 158 had a significant non-cash impact on
the company’s reported financial position and stockholders’ equity, reduc-
ing equity by $9.5 billion, net of tax. The adoption of SFAS No. 158
had no impact on the company’s existing debt covenants, credit ratings
MANAGEMENT DISCUSSION
INTERNATIONAL BUSINESS MACHIN ES CORPORATION AND SUBSI DIARY COMPANIES
12 2006 Annual Report
Management Discussion ........................................................
Road Map ............................................................................. 
Forward-Looking and Cautionary Statements ..................... 
Management Discussion Snapshot ...................................... 
Description of Business ....................................................... 
Year in Review...................................................................... 
Prior Year in Review ............................................................. 
Discontinued Operations ..................................................... 
Other Information ................................................................ 
Global Financing .................................................................. 
Report of Management .........................................................
Report of Independent Registered Public Accounting Firm .... 
Consolidated Statements ....................................................... 
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