IBM 2012 Annual Report Download - page 19

1818 Management Discussion
International Business Machines Corporation and Subsidiary Companies
Overview
The financial section of the International Business Machines
Cor por ation (IBM or the company) 2012 Annual Report includes the
Management Discussion, the Consolidated Financial State ments
and the Notes to the Consolidated Financial State ments. This
Over view is designed to provide the reader with some perspective
regarding the information contained in the financial section.
Organization of Information
• The Management Discussion is designed to provide readers with
an overview of the business and a narrative on the company’s
financial results and certain factors that may affect its future
prospects from the perspective of the company’s management.
The “Management Discussion Snap shot,” on pages 19 to 21,
presents an overview of the key performance drivers in 2012.
• Beginningwiththe“YearinReview”onpage 26, the Manage ment
Discussion contains the results of operations for each reportable
segment of the business and a discussion of the company’s finan-
cial position and cash flows. Other key sections within the
Management Discussion include: “Looking Forward” on page 55,
and “Liquidity and Capital Resources” on pages 56 through 58.
• GlobalFinancingisareportablesegmentthatismeasuredasa
stand-alone entity. A separate “Global Financing” section is
included beginning on page 63.
• TheConsolidatedFinancialStatementsarepresentedonpages
70 through 75. These statements provide an overview of the
company’s income and cash flow performance and its financial
position.
• The Notes follow the Consolidated Financial Statements. Among
other items, the Notes contain the company’s accounting policies
(pages 76 to 86), acquisitions and divestitures (pages 87 through
91), detailed information on specific items within the financial
statements, certain contingencies and commitments (pages 110
to 113) and retirement-related benefits information (pages 120
to 134).
• The Consolidated Financial Statements and the Notes have been
prepared in accordance with accounting principles generally
accepted in the United States (GAAP).
• The references to “adjusted for currency” or “at constant cur-
rency” in the Management Discussion do not include operational
impacts that could result from fluctuations in foreign currency
rates. Certain financial results are adjusted based on a simple
mathematical model that translates current period results in local
currency using the comparable prior year period’s currency con-
version rate. This approach is used for countries where the
functional currency is the local country currency. This informa-
tion is provided so that certain financial results can be viewed
without the impact of fluctuations in foreign currency rates,
thereby facilitating period-to-period comparisons of business
performance. See “Currency Rate Fluctuations” on page 61 for
additional information.
• Within the financial statements and tables in this Annual Report,
certain columns and rows may not add due to the use of rounded
numbers for disclosure purposes. Percentages reported are
calculated from the underlying whole-dollar numbers.
Operating (non-GAAP) Earnings
In an effort to provide better transparency into the operational results
of the business, the company separates business results into oper-
ating and non-operating categories. Operating earnings is a
non-GAAP measure that excludes the effects of certain acquisition-
related charges and retirement-related costs, and their related tax
impacts. For acquisitions, operating earnings exclude the amortiza-
tion of purchased intangible assets and acquisition-related
charges such as in-process research and development, transac-
tion costs, applicable restructuring and related expenses and tax
charges related to acquisition integration. For retirement-related
costs, the company characterizes certain items as operating and
others as non-operating. The company includes defined benefit plan
and nonpension postretirement benefit plan service cost, amortiza-
tion of prior service cost and the cost of defined contribution plans in
operating earnings. Non-operating retirement-related cost includes
defined benefit plan and nonpension postretirement benefit plan
interest cost, expected return on plan assets, amortized actuarial
gains/losses, the impacts of any plan curtailments/settlements and
multi-employer plan costs, pension insolvency costs and other
costs. Non-operating costs are primarily related to changes in pen-
sion plan assets and liabilities which are tied to financial market
performance and the company considers these costs to be outside
the operational performance of the business.
Overall, the company believes that providing investors with a view
of operating earnings as described above provides increased trans-
parency and clarity into both the operational results of the business
and the performance of the company’s pension plans; improves
visibility to management decisions and their impacts on operational
performance; enables better comparison to peer companies; and
allows the company to provide a long-term strategic view of the
business going forward. For its 2015 earnings per share road map,
the company is utilizing an operating view to establish its objectives
and track its progress. The company’s reportable segment financial
results reflect operating earnings, consistent with the company’s
management and measurement system.
Forward-Looking and
Cautionary Statements
Certain statements contained in this Annual Report may constitute
forward-looking statements within the meaning of the Private
Secur ities Litigation Reform Act of 1995. Any forward-looking state-
ment in this Annual Report speaks only as of the date on which it is
made; the company assumes no obligation to update or revise any
such statements. Forward-looking statements are based on the
company’s current assumptions regarding future business and
financial performance; these statements, by their nature, address
matters that are uncertain to different degrees. Forward-looking
statements involve a number of risks, uncertainties and other factors
that could cause actual results to be materially different, as discussed
more fully elsewhere in this Annual Report and in the company’s
filings with the Securities and Exchange Commission (SEC), includ-
ing the company’s 2012 Form 10-K filed on February 26, 2013.