IBM 2007 Annual Report Download - page 17

Management Discussion
International Business Machines Corporation and Subsidiary Companies
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provisions of Statement of Financial Accounting Standards (SFAS) No. 6,
“Classification of Short-Term Obligations Expected to Be Refinanced,” the
company has classified this amount as Long-term debt in its Consolidated
Statement of Financial Position on page 59.
U Effective December 31, 2006, the company adopted the provisions of
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 Stockholder’s Equity.
The adoption of SFAS No. 158 had a significant non-cash impact on the
company’s 2006 reported financial position and stockholder’s equity,
reducing 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
or financial flexibility. See note U, “Retirement-Related Benefits,” on
pages 105 to 116 for additional information, including 2007 impacts.
U The company divested its Personal Computing business to Lenovo on
April 30, 2005. The details of this significant transaction are discussed
in note C, “Acquisitions/Divestitures,” on pages 81 and 82. As a result
of this divestiture, the company’s reported financial results do not include
any activity in 2007 and 2006, but includes four months of activity for
the Personal Computing Division in 2005. This lack of comparable
periods has a material impact on the company’s reported revenue growth.
Therefore, in the Management Discussion, within the “Prior Year in
Review” section on pages 38 to 41, the company has presented an analysis
of revenue both on an as-reported basis and on a basis that excludes the
revenue from the divested Personal Computing business from the 2005
period. The company believes that the analysis that excludes the Personal
Computing revenue is a better indicator of operational revenue perfor-
mance on an ongoing basis.
U The reference to “adjusted for currency” in the Management Discussion
is made so that certain financial results can be viewed without the impacts
of fluctuating foreign currency exchange rates and therefore facilitates a
comparative view of business performance. See “Currency Rate Fluctuations”
on page 49 for additional information.
U Within the financial tables in this Annual Report, certain columns and
rows may not add due to the use of rounded numbers for disclosure pur-
poses. Percentages reported in the financial tables throughout this Annual
Report are calculated from the underlying whole-dollar numbers.
Organization of Information
U This Management Discussion section provides the reader of the financial
statements with a narrative on the company’s financial results. It con-
tains the results of operations for each segment of the business, followed by
a description of the company’s financial position, as well as certain
employee data. It is useful to read the Management Discussion in con-
junction with note V, “Segment Information,” on pages 116 to 119.
U Global Financing is a reportable segment that is measured as if it were
a standalone entity. A separate “Global Financing” section is included
beginning on page 50. This section is separately presented given this
segment’s unique impact on the company’s financial condition and lever-
age, and the information presented in this section is consistent with this
separate company view.
U Pages 58 through 63 include the Consolidated Financial Statements.
These statements provide an overview of the company’s income and cash
flow performance and its financial position.
U The notes follow the Consolidated Financial Statements. Among other
items, the notes contain the company’s accounting policies (pages 64 to
73), acquisitions and divestitures (pages 76 to 82), detailed information
on specific items within the financial statements, certain contingencies
and commitments (pages 94 through 96), and the results of each report-
able segment (pages 116 to 119).
Discontinued Operations
On December 31, 2002, the company sold its hard disk drive (HDD)
business to Hitachi, Ltd. (Hitachi). The HDD business was accounted
for as a discontinued operation under generally accepted accounting
principles (GAAP) which requires that the income statement and
cash flow information be reformatted to separate the divested busi-
ness from the company’s continuing operations. See page 42 for
additional information.
Forward-Looking and
Cautionary Statements
Certain statements contained in this Annual Report may constitute
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements involve
a number of risks, uncertainties and other factors that could cause
actual results to be materially different, as discussed more fully else-
where in this Annual Report and in the company’s filings with the
Securities and Exchange Commission (SEC), including the company’s
2007 Form 10-K filed on February 26, 2008.