IBM 2015 Annual Report Download - page 71

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69
Management Discussion
International Business Machines Corporation and Subsidiary Companies
information on customer IT security events and vulnerabilities and
provide detailed information to customers about potential threats
and security posture. The company’s services businesses offer
professional solutions for security from assessment to deploy-
ment and resource augmentation. In addition, the company offers
managed and outsourced security solutions from multiple security
operations centers around the world. Finally, security is embedded
in a multitude of IBM offerings through secure engineering pro-
cesses and by critical functions (encryption, access control, etc.)
in servers, storage, software, service, and other solutions.
From an enterprise perspective, IBM implements a multi-
faceted risk-management approach to identify and address
cybersecurity risks. The company has established policies and
procedures that provide the foundation by which IBM’s infrastruc-
ture and data are managed. IBM performs ongoing assessments
regarding its technical controls and its methods for identifying
emerging risks related to cybersecurity. The company uses a
layered approach with overlapping controls to defend against
cybersecurity attacks and threats on networks, end-user devices,
servers, applications and cloud solutions. The company also has
a global incident response process to respond to cybersecurity
threats. In addition, the company utilizes a combination of online
training, educational tools, social media and other awareness ini-
tiatives to foster a culture of security awareness and responsibility
among its workforce.
Employees and Related Workforce
Yr.-to-Yr. Percent Change
For the year ended December 31: 2015 2014 2013 2015–14 2014–13
IBM/wholly owned subsidiaries 377,757 379,592* 431,212 (0.5)% (12.0)%*
Less-than-wholly owned subsidiaries 9,577 8,862 9,018 8.1 (1.7)
Complementary 24,464 24,321 23,555 0.6 3.3
* Reflects reduction of approximately 35,000 employees (approximately 8 percent) due to divestitures.
As a globally integrated enterprise, the company operates in more
than 175countries and is continuing to shift its business to the
higher value segments of enterprise IT. The company continues to
remix its skills and people needs to match the best opportunities
in the marketplace.
The complementary workforce is an approximation of equiv-
alent full-time employees hired under temporary, part-time and
limited-term employment arrangements to meet specific business
needs in a flexible and cost-effective manner.
GLOBAL FINANCING
Global Financing is a reportable segment that is measured as a
stand-alone entity.
In 2015, the Global Financing business remained focused on
its core competencies—providing IT financing to the company’s
clients and business partners. For the year, Global Financing deliv-
ered external revenue of $1,840 million and total revenue of $4,477
million, maintaining constant gross margins. Total pre-tax income
of $2,364 million increased 8.0percent compared to 2014 and
return on equity was 41.5percent.
In addition to the overall health of the economy and its impact
on corporate IT budgets, key drivers of Global Financing’s results
are interest rates and originations. Interest rates directly impact
Global Financing’s business by increasing or decreasing both
financing revenue and the associated borrowing costs. Orig-
inations, which determine the asset base of Global Financing’s
annuity-like business, are impacted by IBM’s non-Global Financing
sales and services volumes and Global Financing’s participation
rates. Participation rates are the propensity of IBM’s clients to
finance their transactions through Global Financing in lieu of paying
IBM up-front cash or financing through a third party.
Results of Operations
($ inmillions)
For the year ended December 31: 2015 2014 2013
External revenue $1,840 $2,034 $2,022
Internal revenue 2,637 2,488 2,282
Total revenu e 4,477 4,522 4,304
Cost 1,412 1,428 1,417
Gross profi t $3,065 $3,094 $2,888
Gross profi t margin 68.5% 68.4% 67.1%
Pre-tax income $2,364 $2,189 $2,171
After-tax income* $1,572 $1,462 $1,456
Return on equity* 41.5% 36.8% 40.6%
* See page73 for the details of the after-tax income and return on equity calculation.