IBM 2013 Annual Report Download - page 142

Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
141
Medicare Prescription Drug Act
In connection with the Medicare Prescription Drug Improvement and
Modernization Act of 2003, the company qualified to receive a federal
subsidy through 2013. Due to benefit plan changes effective January
1, 2014, the company will not qualify for the subsidy as of that date. The
company received total subsidies of $30 million and $53 million for
prescription drug-related coverage during the years ended December
31, 2013 and 2012, respectively, which were utilized to reduce the com-
pany contributions to the U.S. nonpension postretirement benefit plan.
The company is also expected to receive additional subsidies after
2013 to true up the final subsidy amount due to IBM under the Act.
The company has included the impact of its portion of the sub-
sidy in the determination of net periodic cost for the U.S. nonpension
postretirement benefit plan for the years ended December 31, 2013,
2012, and 2011. The impact of the subsidy resulted in a reduction in
2013, 2012 and 2011 net periodic cost of $45 million, $35 million and
$37 million, respectively.
Other Plan Information
The following table presents information for defined benefit pension plans with accumulated benefit obligations (ABO) in excess of plan
assets. For a more detailed presentation of the funded status of the company’s defined benefit pension plans, see the table on page 131.
($ in millions)
2013 2012
At December 31:
Benefit
Obligation
Plan
Assets
Benefit
Obligation
Plan
Assets
Plans with PBO in excess of plan assets $41,003 $29,223 $99,184 $83,799
Plans with ABO in excess of plan assets 40,315 29,213 98,263 83,677
Plans with assets in excess of PBO 58,651 64,194 6,944 7,889
NOTE T.
SEGMENT INFORMATION
The company’s major operations consist of five business segments:
Global Tech nol ogy Services, Global Business Services, Software,
Systems and Technology, and Global Financing. The segments
represent components of the company for which separate financial
information is available that is utilized on a regular basis by the chief
executive officer in determining how to allocate resources and evalu-
ate performance. The segments are determined based on several
factors, including client base, homogeneity of products, technology,
delivery channels and similar economic characteristics.
Information about each segment’s business and the products
and services that generate each segment’s revenue is located in the
“Description of Business” section on pages 32 to 34, and in “Seg-
ment Details,” on pages 35 to 40 in the Management Discussion.
Segment revenue and pre-tax income include transactions
between the segments that are intended to reflect an arm’s-length,
market-based transfer price. Systems and software that are used by
Global Technology Services in outsourcing engagements are pri-
marily sourced internally from Systems and Technology and
Software. For providing IT services that are used internally, Global
Technology Services and Global Business Services recover cost,
as well as a reasonable fee, that is intended to reflect the arm’s-
length value of providing the services. The Global Services segments
enter into arm’s-length loans at prices equivalent to market rates
with Global Financing to facilitate the acquisition of equipment used
in services engagements. All internal transaction prices are reviewed
annually, and reset if appropriate.
The company utilizes globally integrated support organizations
to realize economies of scale and efficient use of resources. As a
result, a considerable amount of expense is shared by all of the
segments. This shared expense includes sales coverage, certain
marketing functions and support functions such as Accounting,
Treasury, Procurement, Legal, Human Re sources, and Billing and
Collections. Where practical, shared expenses are allocated based
on measurable drivers of expense, e.g., headcount. When a clear
and measurable driver cannot be identified, shared expenses are
allocated on a financial basis that is consistent with the company’s
management system, e.g., advertising expense is allocated based on
the gross profits of the segments. A portion of the shared expenses,
which are recorded in net income, are not allocated to the segments.
These expenses are associated with the elimination of internal
transactions and other miscellaneous items.