Excerpts from IBM's 2012 segment disclosures are given below. Business Segments and Capabilities The company's major operations consist of five business segments: Global Technology Services and Global Business Services, which the company collectively calls Global Services, Software, Systems and Technology and Global Financing. Global Technology Services (GTS) primarily provides IT infrastructure and business process services, creating business value for clients through unique technology and IP integrated services within its global delivery model. Global Business Services (GBS) has the mission to deliver predictable business outcomes to the company's clients across two primary business areas: Consulting and Application Management Services. Software consists primarily of middleware and operating systems software. Systems and Technology (STG) provides clients with business solutions requiring advanced computing power and storage capabilities. Global Financing facilitates clients' acquisition of IBM systems, software and services. Global Financing invests in financing assets, leverages with debt and manages the associated risks with the objective of generating consistently strong returns on equity. 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 similar economic characteristics. Segment revenue and pre-tax income include transactions between the segments that are intended to reflect an arm's-length, market-based transfer price. The following tables reflect the results of operations of the company's segments consistent with the management and measurement system utilized within the company. Performance measurement is based on pre-tax income. These results are used, in part, by senior management, both in evaluating the performance of, and in allocating resources to each of the segments. Page 18-49 Management System Segment View Table Summary: Row 1 is a header and spans columns 2 and 3. Rows 5 and 13 are subheaders and contain data only in column 1. Row 1 is a header and spans columns 2 and 3. Rows 5 is a subheader and contains data only in column 1. ($ in millions) Global Services Segments For the year ended December 31: Global Technology Services Global Business Services Software Systems and Technology Global Financing Total Segments 2012 External revenue $40,236 $18,566 $25,448 $17,667 $2,013 $ 103,930 Internal revenue 1,166 719 3,274 676 2,060 7,896 Total revenue $41,402 $19,286 $28,722 $18,343 $4,073 $111,826 Pre-tax income $6,961 $2,983 $ 10,810 $1,227 $2.034 $24,015 Revenue year-to-year change (1.7)% (4.0% 1.8% (7.5)% (2.9% (2.3)% Pre-tax income year-to-year change 10.8% (0.8)% 8.4% (24.9% 1.1% 4.8% Pre-tax income margin 16.8% 15.5% 37.6% 6.7% 49.9% 21.5% 2011 External revenue $40,879 $19,284 $24,944 $18,985 $2,102 $ 106,194 Internal revenue 1,242 797 3,276 838 2,092 8,246 Total revenue $42.121 $20,081 $28,219 $19,823 $4,195 $114,440 Pre-tax income $6.284 $3,006 $9.970 $1,633 $2.011 $22,904 Revenue year-to-year change 6.6% 5.6% 10.9% 5.6% 2.8% 7.1% Pre-tax income year-to-year change 14.3% 18.1% 5.3% 12.2% 2.8% 9.5% Pre-tax income margin 14.9% 15.0% 35.3% 8.2% 47.9% 20.0% 2010 External revenue $38,201 $18.223 $22,485 $17.973 $2,238 $99,120 Internal revenue 1,313 798 2,950 804 1,842 7,707 Total revenue $39.514 $19,021 $25,436 $18,777 $4,080 $ 106,827 Pre-tax income $5.499 $2,546 $9.466 $1,456 $1,956 $20.923 Revenue year-to-year change 2.0% 2.6% 5.7% 9.8% 0.1% 4.2% Pre-tax income year-to-year change 0.3% 1.8% 13.8% 12.1% 13.5% 8.3% Pre-tax income margin 13.9% 13.4% 37.2% 7.8% 48.0% 19.6% Management System Segment View Management System Segment View Table Summary: Row 1 is a header and spans columns 2 and 3. Rows 4, 10, and 16 are subheaders and contain data only in column 1. ($ in millions) Global Services Segments For the year ended December 31: Global Technology Global Business Services Services Software Systems and Technology Global Financing Total Segments 2012 Assets $15,884 $8,022 $ 26,291 $8.232 $38,882 $97,310 Depreciation/amortization of intangibles* 1,597 75 1.157 786 853 4,470 1,760 42 618 1.106 708 4,233 Capital expenditures/investments in intangibles Interest income 1.942 1,942 Interest expense 410 410 2011 Assets $ 15,475 $8,078 $23,926 $7,649 $36,427 $91,557 Depreciation/amortization of intangibles* 1.713 83 1,062 737 1,145 4,739 1,838 56 469 1,032 930 4,325 Capital expenditures/investments in intangibles Interest income 2,139 2,139 Interest expense 538 538 2010 Assets $15,560 $8,007 $22,625 $7,287 $35,813 $89,292 Depreciation/amortization of intangibles* 1,632 75 992 784 1,417 4,900 Capital expenditures/investments in 1.511 52 463 1.163 1.246 4.434 Interest income 2,116 2,116 Interest expense 548 548 Major Clients No single client represented 10 percent or more of the company's total revenue in 2012, 2011, or 2010. Geographic Information The following provides information for those countries that are 10% or more of the specific category. Revenue* ($ in millions) For the year ended December 31: 2012 2011 2010 United States $ 36,270 $ 37,041 $ 35,581 Japan 10.697 10,968 10,701 Other countries 57,540 58,906 53,589 Total IBM consolidated revenue $104,507 $106,916 $99,870 Plant and Other Property-Net Page ($ in millions) At December 31: 2012 2011 2010 United States $ 6,555 $ 6,271 $ 6,134 Other countries 6,299 6,186 6,298 ($ in millions) At December 31: 2012 2011 2010 United States $ 6,555 $ 6,271 $ 6,134 Other countries 6,299 6,186 6,298 Total $12,854 $12,457 $12,432 Source: IBM's 2012 annual report. Required: All questions relate to 2012 unless stated otherwise. 1. IBM refers to its segment reports as the "Management System Segment View." What does IBM mean by this and how does it relate to the disclosure requirements under U.S. GAAP? 2. Which business segment contributes the most (least) external revenue for IBM? Compute the percentage of segment external revenue to total segments external revenue for these two segments. 3. Which business segment contributes the most (least) pre-tax income for IBM? Compute the percentage of segment pre-tax income to total segments pre-tax income for these two segments. 4. Which business segment had the highest (lowest) percentage growth (year-to-year change) in total revenue from 2011 to 2012? Show how the growth percentage was computed for the Software segment. 5. Which business segment had the highest (lowest) percentage growth (year-to-year change) in pre-tax income from 2011 to 2012? 6. Which segment had the highest (lowest) pre-tax income margin? Show how IBM computes the pre-tax income margin for these segments. 7. How would analysts use the business segment data related to the income statement? 8. Why would the Global Financing segment hold 40% ($38,882/$97,310) of the segment assets, but generate only 3.6% ($4,073/$111,826) of total segment revenue? 9. What percentage of IBM's revenue is earned in the United States? 10. How would a stronger U.S. dollar affect IBM's future reported revenue