1. IBM Annual Report Chris LaSalle Section 004

2. IBM: Executive Summary Recognizing the shift in the field of information technology, IBM’s Management team identified the weaknesses and sought after solutions that would keep them competitive. The result? Profit margins up and losses down. IBM was once a leader in the technological world and is working hard to ensure they stay in the forefront of their field.

3. Executive Summary (con’t)

4. IBM: Introduction Who: Samuel J. Palmisano Who: Samuel J. Palmisano Where:New Orchard Road Armonk, New York 10504 914-499-1900 Where:New Orchard Road Armonk, New York 10504 914-499-1900 Worldwide with a major focus in North America Europe and Asia When: December 31, 2005 When: December 31, 2005

5. IBM: Focus Principal products and services: Principal products and services: Systems and Financing:Systems and Financing: Storage, servers, personal systems, printing systems, and retail store solutions Storage, servers, personal systems, printing systems, and retail store solutions Software:Software: Specializing in connecting operating systems, business processes, and applications seamlessly Specializing in connecting operating systems, business processes, and applications seamlessly Services:Services: Including a comprehensive IT services integrated with business insight to reduce costs, improve productivity, and assert competitive advantage Including a comprehensive IT services integrated with business insight to reduce costs, improve productivity, and assert competitive advantage

6. IBM: The Audit Report PricewaterhouseCoopers LLP New York, New York PricewaterhouseCoopers LLP New York, New York PricewaterhouseCoopers LLP stated that to the best of their knowledge, IBM’s financial report was an accurate representation of the current financial situation. They audited all of the units, minus one, and upheld the report from another firm regarding that one unit. PricewaterhouseCoopers LLP stated that to the best of their knowledge, IBM’s financial report was an accurate representation of the current financial situation. They audited all of the units, minus one, and upheld the report from another firm regarding that one unit.

7. IBM: Stock Market Information As of 10/6/06 @ 16:00 pm: Current: $83.14 Current: $83.14 12 Month Range: 72.73 89.94 12 Month Range: 72.73 89.94 Dividend amount: $5.37/share Dividend amount: $5.37/share Recommendation: This stock has a continued growth rate and a solid future: HOLD/BUY Recommendation: This stock has a continued growth rate and a solid future: HOLD/BUY

8. IBM: Industry Situation The information technology field is currently a central component in all industries. In the year 2006, few business can survive without the services offered by companies such as IBM. All businesses will benefit from better research and development in this field. The information technology field is currently a central component in all industries. In the year 2006, few business can survive without the services offered by companies such as IBM. All businesses will benefit from better research and development in this field.

9. IBM: Company Plans Using the IBM investor guide and the IBM Annual Report, IBM plans to capitalize on their strengths and focus on the three main areas of their business. In addition, a pledge to greater organizational efficiency through reduced costs, decreased inventory, and speedier procurement. Using the IBM investor guide and the IBM Annual Report, IBM plans to capitalize on their strengths and focus on the three main areas of their business. In addition, a pledge to greater organizational efficiency through reduced costs, decreased inventory, and speedier procurement.

10. IBM: Income Statement Format: single-step Format: single-step 20042005 Gross Profit 35,56836,532 Operating Income 7,994 7,994 7,497 7,497 Net Income 7,934 7,934 7,479 7,479 Numbers shown in millions

11. IBM: Income Statement (con’t) Although IBM reported a loss in operating and net incomes just shy of 1,000,000; the gross profit has increased by 964,000. These loses may be due to restructuring and/or taxes and in future years could possibly pave the way for the company to show a more rotund profit. Although IBM reported a loss in operating and net incomes just shy of 1,000,000; the gross profit has increased by 964,000. These loses may be due to restructuring and/or taxes and in future years could possibly pave the way for the company to show a more rotund profit.

12. IBM: Balance Sheet Assets=Liabilities + Stockholders’ Equity Assets=Liabilities + Stockholders’ Equity 2004 111.003 = 79,315 + 31,688 2005 105,748 = 72,650 + 33,098

13. IBM: Balance Sheet While assets and liabilities decreased, stockholders equity increased. A possible explanation for the increase in stockholder equity could be due to the divesting of a less profitable portion of the company. While assets and liabilities decreased, stockholders equity increased. A possible explanation for the increase in stockholder equity could be due to the divesting of a less profitable portion of the company.

14. IBM: Statement of Cash Flows The net cash flows from operations for 2005 were more than 2003 but less than 2004. The net cash flows from operations for 2005 were more than 2003 but less than 2004. The companies growth has come from their attention and specialization of products and services in their industry. They have recently consolidated by divesting a significant part of the company. The companies growth has come from their attention and specialization of products and services in their industry. They have recently consolidated by divesting a significant part of the company. The company’s primary source of financing is currently stock sales. The company’s primary source of financing is currently stock sales. Cash has both increased and decreased over the past two years. Cash has both increased and decreased over the past two years.

15. IBM: Accounting Policies Topics of the notes to the financial statement Significant Accounting Policies Significant Accounting Policies Accounting changes Accounting changes Acquisitions/Divestitures Acquisitions/Divestitures Financial Instruments Financial Instruments Inventories Inventories Financial Receivables Financial Receivables Plant, rental machines, and other property. Plant, rental machines, and other property. Investments and Sundry Assets Investments and Sundry Assets Intangible Assets Including Good Will Intangible Assets Including Good Will Securitization of Receivables Securitization of Receivables Borrowings Borrowings

16. IBM: Accounting Policies Topics of the notes to the financial statement con’t Derivations and Hedging Transactions Derivations and Hedging Transactions Other Liabilities Other Liabilities Stockholders’ Equity Activity Stockholders’ Equity Activity Contingencies and Commitments Contingencies and Commitments Taxes Taxes Research, Development and Engineering Research, Development and Engineering 2005 Actions 2005 Actions Earnings Per Share of Common Stock Earnings Per Share of Common Stock Rental Expense and Lease Commitments Rental Expense and Lease Commitments Stock-Based Compensation Stock-Based Compensation Retirement-Related Benefits Retirement-Related Benefits Segment Information Segment Information Subsequent Events Subsequent Events

17. IBM: Financial Analysis Liquidity Ratios 2005 Working Capital: $7,858,000 Working Capital: $7,858,000 Current Ratio: 2.66 Current Ratio: 2.66 Receivable turnover: 3.7 Receivable turnover: 3.7 Average days’ sales uncollected: 98.6 Average days’ sales uncollected: 98.6 Inventory turnover: 19.2 Inventory turnover: 19.2 Average days’ inventory on hand: 19.01 Average days’ inventory on hand: 19.01

18. IBM: Financial Analysis Liquidity Ratios con’t 2004 Working Capital: $5,235,000 Working Capital: $5,235,000 Current Ratio: 2.13 Current Ratio: 2.13 Receivable turnover: 2.46 Receivable turnover: 2.46 Average days’ sales uncollected: 148.4 Average days’ sales uncollected: 148.4 Inventory turnover: 18.3 Inventory turnover: 18.3 Average days’ inventory on hand: 19.94 Average days’ inventory on hand: 19.94

19. IBM: Financial Analysis Liquidity Ratios con’t When comparing the liquidity ratios from 2004 to 2005 the following results were found: When comparing the liquidity ratios from 2004 to 2005 the following results were found: Working Capitol increased considerably. Working Capitol increased considerably. Current Ratio shows added strength and an increased ability to pay debt. Current Ratio shows added strength and an increased ability to pay debt. Receivable Turnover increased indicating a more effective credit policy. Receivable Turnover increased indicating a more effective credit policy.

20. IBM: Financial Analysis Liquidity Ratios con’t Average Day’s Sales Uncollected has shown a significant decrease indicating a smaller number of day’s till collection of receivables. Average Day’s Sales Uncollected has shown a significant decrease indicating a smaller number of day’s till collection of receivables. Inventory turnover has increased equating to a larger relative size of the companies inventory. Inventory turnover has increased equating to a larger relative size of the companies inventory. Average days inventory on hand has decreased indicating a lower number of days taken to sell inventory. Average days inventory on hand has decreased indicating a lower number of days taken to sell inventory.

21. IBM: Financial Analysis Profitability Ratios Profit margin: 2005= 8.7%, 2004= 7.7% Profit margin: 2005= 8.7%, 2004= 7.7% Asset turnover:2005=.86, 2004=.87 Asset turnover:2005=.86, 2004=.87 Return on assets:2005= 7.5%, 2004= 6.7% Return on assets:2005= 7.5%, 2004= 6.7% Return on equity:2005= 23.9%, 2004= 23.6% Return on equity:2005= 23.9%, 2004= 23.6%

22. IBM: Financial Analysis Profitability Ratios con’t. The increase in Profit Margin is indicative of an increase in efficiency with respect to each dollar spent. The increase in Profit Margin is indicative of an increase in efficiency with respect to each dollar spent. Asset turnover has remained relatively unchanged. Asset turnover has remained relatively unchanged. An increase in the Return on Assets shows the companies solid profitability. An increase in the Return on Assets shows the companies solid profitability. A slight increase in the Return on Equity shows the gain in profitability of stockholders investments. A slight increase in the Return on Equity shows the gain in profitability of stockholders investments.

23. IBM: Financial Analysis Solvency Ratio Debt to equity: 2005= 3.19, 2004= 3.5 Debt to equity: 2005= 3.19, 2004= 3.5 Although IBM’s stockholders own more of the company than in the past, the creditors still own a majority. Although IBM’s stockholders own more of the company than in the past, the creditors still own a majority.

24. IBM: Financial Analysis Market Strength Ratios Price/earnings per share: 2005= 15.48, 2004= 16.4. Investor confidence has declined. Price/earnings per share: 2005= 15.48, 2004= 16.4. Investor confidence has declined. Dividend yield: 2005=.07, 2004= 1. This stocks current return to an investor has declined. Dividend yield: 2005=.07, 2004= 1. This stocks current return to an investor has declined.