IBM 2015 Annual Report Download - page 143

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 effec-
tive January1, 2014, the company did not qualify for the subsidy
as of that date. The company received total subsidies of $1million
and $23million for prescription drug-related coverage during the
years ended December31, 2015 and 2014, respectively, to true
up the final subsidy amounts due to IBM under the Act. These
subsidies were utilized to reduce the company contributions to
the U.S. nonpension postretirement benefit plan.
Other Plan Information
The following table presents information for defined benefit pen-
sion plans with accumulated benefit obligations (ABO) in excess
of plan assets. For a more detailed presentation of the funded
status of the company’s defined benefit pension plans, see the
table on page131.
($ inmillions)
2015 2014
At December 31:
Benefi t
Obligation
Plan
Assets
Benefi t
Obligation
Plan
Assets
Plans with PBO in excess of plan assets $29,784 $17,677 $34,976 $21,655
Plans with ABO in excess of plan assets 29,135 17,492 33,148 20,680
Plans with assets in excess of PBO 68,053 69,786 71,501 73,660
NOTET.
SEGMENT INFORMATION
The company’s major operations consist of five business
segments: Global Tech nol ogy Services, Global Business Ser-
vices, Software, Systems Hardware 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 evaluate performance. The segments
are determined based on several factors, including client base,
homogeneity of products, technology, delivery channels and sim-
ilar 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 25 to 27, and in “Seg-
ment Details,” on pages 29 to 34 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
primarily sourced internally from Systems Hardware and Software.
For providing IT services that are used internally, Global Technol-
ogy 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 compa-
ny’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.