Annual Report International Business Machine

(IBM) Corporation

Jiena Zheng

Session: Summer 2013 http://www.ibm.com/annualreport/2012/bin/assets/2012_ibm_annual.pdf

• Chief Executive Officer: Virginia M. (Ginni) Rometty

• Home Office: International Business Machines Corporation, 1 New Orchard Road, Armonk, New York 10504-1722, United States

• Ending Date of last fiscal year: Dec. 31st, 2012 • Main geographical area of activity: IBM serves

customers globally across most industries, including North American, United kingdom, Middle East, Africa and Asia Pacific.

• IBM’s principle products and services: As the world's top provider of computer products and services, IBM focuses primarily on its growing services business that accounts for more than half of sales. Known in the field of computer hardware as industry-leading enterprise server, IBM is also recognized as one of the largest providers of information technology, business services, software units and semiconductors.

• IBM’s Independent Auditors:

PricewaterhouseCoopers LLP

• Chairman: Michael L. Eskew

• Director: David N. Farr,

• Director: James W. Owens

• Director: Joan E. Spero

• Auditors’ Evaluation of IBM: The auditors

concluded that the financial statements and recordings of IBM accurately presents financial position of International Business Machines Corporations and its subsidiaries at Dec. 31, 2012 and 2011. The results of their operations and cash flows are in agreement of accounting principles generally accepted in the United States. Also, IBM maintained effective internal control over financial reporting.

• Most recent price of the company’s stock: $208.02 (May 1st,2013)

• Twelve month trading range of the company’s stock: $181.85 – $215.90

• Dividend per share of common stock: $3.5

• Date of the above information: May 31st, 2013 • There is a relative stability in trading range of the

company’s stock. Also, according to the data provided, the stock is in a relatively uptrend. Thus, I would buy IBM’S stock because it’s a safe stock for investment.

May 8th -Aug 8th 2012 Aug 9th - Nov 7th 2012 Nov. 8th 2012-Feb 6th 2013 Feb 6th - May 8th 2013 Total

$0.85 $0.85 $0.85 $0.95 $3.5

Twelve months trading range of the company’s stock

2011 2012

Goss Profit $ 50,138 $ 50,298

Income from Operations

$ 26,544 $ 26,745

Net Income $ 15,855 $ 16,604

Note: $ in millions

It is most like a multistep format.

• According to the data above, the Gross Revenue and Net Income both increase, which indicates that IBM has year to year growth in gain. Gross Profit and Income from Operation of 2011 and 2012 are pretty close. Because the Income from Operation only generated from normal operations, so we can assume that similar income will be generated every year as operation goes on. However, there is a lot more increase of Net Income in 2012 than 2011. Then noticing the big gap of Other (income) and expense in 2011 and 2012, and compare with the expense in 2010, we can conclude that the difference was mainly influenced by the abnormal other(income) and expense account in 2012.

2011 2012 Changes

Assets 116,433 119,213

2,780

=

Liabilities 96,197

100,229

4,032

+

Shareholders’ Equity 20,236

18,984 (1,252)

Liabilities + Shareholders’ Equity 116,433 119,213 2780

Note: $ in millions

• Comparing the information above of 2011 and 2012, there is a 2,780 increase in Assets in 2012, a 4,032 increase in Liabilities and a 1252 decrease in Shareholders’ Equity.

• There is a most amount increase in liabilities, which seems to be caused by increase in “long-term debt” and “Retirement and nonpension postretirement benefit obligations”.

Operating Financing Investing

2011 19,846 (13,696) (4,396)

2012 19,586 (11,976) (9,004)

$ in millions

• For the past two year, the cash flows from operations were more than

net income

• The company did not grow through investing activities. As the statement

of cash flow shows that there is a big 4604 million dollars loss for the

fiscal year 2012 in investing activities. Among all the investing activities,

only Divestiture of businesses, net of cash transferred increased 585 in

2012.

• The company’s primary source of financing is Proceeds from new debt

• There is an increase in company's cash in year 2011 and decrease in year

2012. the difference is primary caused by abnormal low purchases of

marketable securities and other investments in year 2011

The accompanying Consolidated Financial Statements and foot- notes of the International Business Machines Corporation (IBM or the company) are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP).

• A. Significant Accounting Policies • B. Accounting Changes • C. Acquisitions/Divestitures • D. Financial Instruments • E. Inventories • F. Financing Receivables • G. Property, Plant and Equipment • H. Investments and Sundry Assets • I. Intangible Assets Including Goodwill • J. Borrowings • K. Other Liabilities • L. Equity Activity • M. Contingencies and Commitments • N. Taxes • O. Research, Development and Engineering • P. Earnings Per Share of Common Stock • Q. Rental Expense and Lease Commitments • R. Stock-Based Compensation • S. Retirement-Related Benefits • T. Segment Information • U. Subsequent Events

Ratios 2011 2012

Working Capital 8,805 5,808

Current Ratio 1.209 1.133

Receivable Turnover 9.56 9.80

Average days’ sales uncollected 38.18 37.24

Inventory Turnover 41.20 45.70

Average Days’ Inventory On Hand 8.86 7.99

Operating Cycle 47 45

Payables Turnover 12.55 13.14

Average Days Payable 29 28

IBM’s working Capital dramatically decrease almost 3000 millions in 2012. The Current Ratio, Average days’ sales uncollected,Average Days Payable, Average Days’ inventory on hand, and operating cycle all slightly decreased in year 2012. The Receivable Turnover, Inventory Turnover, and Payables Turnover slightly increased.

2011 Working Capital=Current Assets – Current Liabilities= 50,928 –42,123= 8805 2012 Working Capital=Current Assets – Current Liabilities= 49,433 –43625= 5808 2011 Current Ratio=Current Assets/Current Liabilities= 50,928 /42,123= 1.209 2012 Current Ratio=Current Assets/Current Liabilities= 49,433 /43625= 1.133 2011 Receivable Turnover=Revenue/Notes and accounts receivable=106,916/11,179=9.56 2012 Receivable Turnover=Revenue/Notes and accounts receivable=104,507/10,667 = 9.80 2011 Average days’ sales uncollected=365 / Receivables turnover =365/9.56 = 38.18 2012 Average days’ sales uncollected=365 / Receivables turnover =365/9.80 = 37.24 2011 Inventory Turnover=Revenue / Inventories=106,916/2,595=41.20 2012 Inventory Turnover=Revenue / Inventories=104,507/2,287=45.70 2011 Average Days’ Inventory On Hand= 365 / Inventory Turnover=365/41.20=8.86 2012 Average Days’ Inventory On Hand= 365 / Inventory Turnover=365/45.70=7.99 2011 Operating Cycle=Average inventory processing period + Average receivable collection period=9+38=47 2012 Operating Cycle=Average inventory processing period + Average receivable collection period=8+37=45 2011 Payables Turnover=Revenue / Accounts payable=106,916/8,517=12.55 2012 Payables Turnover=Revenue / Accounts payable=104,507/7,952=13.14 2011 Average Days Payable=365 / Payables Turnover=365/12.55=29 2012 Average Days Payable=365 / Payables Turnover=365/13.14=28

Reference

Ratio 2011 2012

Net Profit Margin 14.83% 15.89%

Total Asset Turnover 0.92 0.88

Return on Assets 13.62% 13.93%

Return on Equity 78.73% 88.04%

International Business Machines Corp.'s total asset turnover improved from 2010 to 2011 but then deteriorated significantly from 2011 to 2012. However, there is a steady increase in Profit Margin, Return on Assets. And almost 10% increase in Return on Equity.

Ratio Reference

2011 Net Profit Margin=100*Net Income/Revenue=100*15,855/106,916=14.83% 2012 Net Profit Margin=100*Net Income/Revenue=100*16,604/104,507=15.89% 2011 Total Asset Turnover = Revenue / Total Assets = 106,916/116,433=0.92 2012 Total Asset Turnover = Revenue / Total Assets = 104,507 / 119,213 = 0.88 2011 Return on Assets=100 × Net Income / Total Assets=100*15,855/116,422=13.62% 2012 Return on Assets=100 × Net Income / Total Assets=100*16,604/119,213=13.93% 2011 Return on Equity = 100 × Net income / Total IBM stockholders' equity= 100 × 15,855/20,138=78.73% 2012 Return on Equity = 100 × Net income / Total IBM stockholders' equity= 100 × 16,604 / 18,860 = 88.04%

Ratios 2011 2012

Earnings per share 13.06 14.37

Stock Price per share 183.88 191.55

Dividend yield 1.58% 1.72%

The Price/Earning per share ratio slightly decreased from year 2011 to 2012, the Dividend yield on the other hand, increased by 0.14%

2011 2012

Debt to Equity 1.56 1.76

Financing Gap 18.04 17.23

The debt to equity increase in 2012 than in 2011 and the financing

gap in 2012 is slightly smaller than in 2011. Generally speaking,

IBM’S solvency ability is slightly deteriorating.

2011 Dividend Yield=Annual Dividends Per Share / Price Per Share=2.90 /

183.88=1.58%

2011 Dividend Yield=Annual Dividends Per Share / Price Per

Share=3.30/191.55=1.72%

Ratio Reference

2011 Debt to equity = Total debt / Total IBM stockholders' equity= 31,320 /

20,138 = 1.56

2012 Debt to equity = Total debt / Total IBM stockholders' equity= 33,269 /

18,860 = 1.76

2011 Operating Cycle= Days Inventory on Hand + Days Sales=8.86+38.18=47.04

2012 Operating Cycle= Days Inventory on Hand + Days Sales=7.99+37.24=45.23

2011 Financing Gap=Operating Cycle-Days Payable=47.04-29=18.04

2012 Financing Gap=Operating Cycle-Days Payable=45.23-28=17.23

As a globally integrated enterprise, IBM continuously pursue higher-value, more

profitable strategizes in technologies and marketing to satisfy clients’ needs,ensure

company’s future growth to investors, employee, and provide strong returns to

shareholders. IBM would continue developing technology in the idea of “a

smarter planet” in three core areas: Designed for Dates, Defined by Software, and

Open and Collaborative. Digital intelligence changes the way of what

people,organizations, and entire industries are doing. IBM Research is one of the

forerunners in information technology.

Reference

Continuing the 2015 Road Map

Words from CEO: In 2012, IBM accomplished 13 percent growth in operating earnings per share, going well on track to reach IBM’s 2015 Road Map objective of at least $20 of operating earnings per share. This reflects IBM’s strategic position and capabilities, the discipline of its management systems, the dedication and expertise of more than 430,000 IBMers around the world, and more importantly, the impact of distinct choices made in IBM’s business and technology model.