31. On the Balance Sheet on December 31, 2019, what does the balance of the account "Noncontrolling Interest" represent? 31. Note: Use the Notes to the Financial Statements to answer the following questions. On the income statement and balance sheet, there is a letter next to the accounts that tells you which note provides addiitonal explanation about the account. 32. Are IBM's marketable DEBT securities accounted for as trading securities or available for sale securities? (See Note A, page 83) 32. 33. Back in 2017, IBM had a change in accounting principle (after I told you how rare these would be!) Where was this reported on IBM's financial statements and what was the amount? 33. (Hint: these are reported the same way as corrections of errors from prior periods.) IBM completed the acquisition of another corporation during 2019. (See Note E, page 94) 34. What was the name of the corporation? 35. What percent of the comon shares of that corporation does IBM now own? 34. 35. 36. What estimated useful lives does IBM use for buidlings? (See Note A, page 80) 36. 37. IBM is organized into 5 major business segments. During 2019, they re-organized what was included in each segment and re-named 2 of the segments. Name the two segments whose names were changed. (See Note D, page 90) 37 (1) 37 (2). 38. Who is IBM's auditor? 39. What opinion did they issue in 2019 regarding IBM's financial statemen 40. What "concern" did they raise in 2019 regarding IBM's internal contol? 38. 39 40. 41 Compute the PERCENT OF CHANGE from 2018 to 2019 in Total Liabilities, Total Assets, Total Revenue, and Net Income by completing the following chart. Be sure to indicate if the change is positive or negative. 2019 2018 $ Change % of Change Total Liabilities Total Assets Total Revenues Net Income 42. Prepare a VERTICAL ANALYSIS or common-size income statement for 2019 for the following items only: Total Revenue, Total Cost, Gross Profit, Total Expense and Other Income, Income from Continuing Operations Before Income Taxes, Provision for Income Taxes, Income from Continuing Operatings, Loss from Discontinued Operations, and Net Income Vertical Analysis Total Revenue 77,147 Total Cost 40,659 Gross profit 36,488 Total Expense and Other Income 26,332 Income from Cont Ops Before Taxes 10,166 Provision for Income Taxes 731 Income from Continuing Ops 9,435 Loss/Gain from Disc Operations (4) Net Income 9,431 43. Note: Use the Five Year Comparison of Selected Financial Data Prepare a TREND analysis for Revenue and Net Income for 2015-2019 using 2015 as the base year. 2019 2018 2017 2016 2015 Revenue Trend Net Income Trend 6B Consolidated Income Statement International Business Machines Corporation and Subsidiary Companies Notes 2019 2018 2017 $47,493 28,252 1,402 77,147 $49,257 28,735 1,599 79,591 $48.652 28,772 1,715 79,139 32,491 7.263 904 40,659 36,488 33,687 7,835 1,132 42,655 36,936 33,3999 7,587 1,210 42,196 36,943 F 19,366 5,379 (1,026) 1.152 ($ in millions except per share amounts) For the year ended December 31 Revenue Services Sales Financing Total revenue Cost Services Sales Financing Total cost Gross profit Expense and other (income) Selling, general and administrative Research, development and engineering Intellectual property and custom development income Other (income) and expense Interest expense Total expense and other (income) Income from continuing operations before income taxes Provision for income taxes Income from continuing operations Income/loss) from discontinued operations, net of tax Net income Earnings/(loss) per share of common stock Assuming dilution Continuing operations Discontinued operations Total Basic Continuing operations Discontinued operations Total Weighted average number of common shares outstanding Assuming dilution Basic P&T 20.604 5,989 (648) (968) 1,344 26,322 10.166 731 9,435 19,680 5,590 (1.466) 1,125 615 25,543 11,400 5,642 5,758 (5) $ 5,753 723 25,594 11,342 2.619 8,723 5 $ 8,728 G $ 9,431 $ 10.57 (0.01) $ 10.56 $ 9.51 0.01 H H H $ 6.14 0.00 $ 6.14 $ 9.52 H $ 10.63 0.00 $ 10.63 $ 9.56 0.01 H $ 6.17 0.00 S 6.17 $ 9.57 892,813,376 887,235,105 916,315,714 912,048,072 937,385,625 932,828.295 Reclassified to conform to 2019 presentation. Refer to "Hasis of Presentation in note A, "Significant Accounting Policies." Amounts may not add due to roundine The accompanying notes are an integral part of the financial statements 69 Consolidated Statement of Comprehensive Income International Business Machines Corporation and Subsidiary Companies Notes 2019 2017 2018 $8.728 $ 9,431 $5,753 S (39) (730) 152 S 1 (2) 1 1 1 (2) 2 B-for-sale securities S (136) (689) 75 (614) 449 (58) (363) (421) 313 ($ in millions) For the year ended December 31 Net income Other comprehensive income/loss), before tax Foreign currency translation adjustments Net changes related to available-for-sale securities Unrealized gains/losses) arising during the period Reclassification of (gains)/losses to net income al pet changes related to available-for-sales Unrealized gains/(losses) on cash flow hedges Unrealized gains/(losses) arising during the period Reclassification of (gains)/losses to net income Total unrealized gains/(losses) on cash flow hedges Retirement-related benefit plans Prior service costs/(credits) Net (losses/gains arising during the period samanta Curtailments and settlements Amortization of prior service (credits)/costs Amortization of net (gains)/losses Total retirement-related benefit plans Other comprehensive income/(loss), before tax Income tax (expense)/benefit related to items of other comprehensive income Other comprehensive Income/(loss) Total comprehensive income S (182) (2,517) 11 o 682 19 (73) (120) 41 (9) 1.843 1,681 1,029 (73) 2,966 204 (215) (88) 2,889 3,502 3,235 S S (262) (476) $8,252 1136) 893 $10.324 (429) 2,806 $8,559 S Amounts may not add due to rounding The accompanying notes are an integral part of the financial statements 70 Consolidated Balance Sheet International Business Machines Corporation and Subsidiary Companies Notes 2019 2018 S 8,172 141 696 $ 11,379 225 618 1 K J 7,432 22,388 743 1,682 2,300 2,378 49,146 32,460 21,668 10.792 L 7,870 14,192 1,733 1,619 1,896 2,101 38,420 32.028 22.018 10,010 4.996 8,712 6.865 2,472 5,182 SB.222 15,235 2,074 $ 152,186 L L M K V C 9,148 4.666 2,676 5,216 36,265 3,087 2,386 $ 123,382 N N O $ ($ in millions except per share amounts At December 31: Assets Current assets Cash and cash equivalents Restricted cash Marketable securities Notes and accounts receivable-trade (net of allowances of $299 in 2019 and $309 in 2018) Short-term financing receivables (net of allowances of $188 in 2019 and $244 in 2018) Other accounts receivable (net of allowances of $33 in 2019 and $38 in 2018) Inventory Deferred costs Prepaid expenses and other current assets Total current assets Property, plant and equipment Less: Accumulated depreciation Property, plant and equipment-net Operating right-of-use assets-net Long-term financing receivables (net of allowances of $33 in 2019 and 548 in 2018) Prepaid pension assets Deferred costs Deferred taxes Goodwill Intangible assets-net Investments and sundry assets Total assets Liabilities and equity Current liabilities Taxes Short-term debt Accounts payable Compensation and benefits Deferred income Operating lease liabilities Other accrued expenses and liabilities Total current liabilities Long-term debt Retirement and nonpension postretirement benefit obligations Deferred income Operating lease liabilities Other liabilities Total liabilities Commitments and Contingencies Equity IBM stockholders' equity Common stock, par value $.20 per share, and additional paid-in capital Shares authorized: 4,687,500,000 Shares issued (2019-2,237,996.975: 2018-2,233,427,058) Retained earnings Treasury stock, at cost (shares: 2019-1,350,886,521; 2018-1,340,947,648) Accumulated other comprehensive income/(los) Total IBM stockholders' equity Noncontrolling interests Total equity Total liabilities and equity * Reflects the adoption of the FASB guidance on leases. Amounts may not add due to rounding The accompanying notes are an integral part of the financial statements, $ G I&P 3,046 10,207 6,558 3,310 11,165 M 2,839 8,797 4,896 3,406 12,026 1,380 4,357 37.701 54,102 17,142 3,851 3,879 14,526 131,202 I&P V 3,941 38,227 35,605 17.002 3,445 M 0 12,174 106,452 R S 55,895 55,151 162.954 (169,413) (28,597) 20.841 144 20,985 $152,186 159,206 (168,071) (29,490) 16,796 134 16,929 A $ 123,382 71 Consolidated Statement of Cash Flows International Business Machines Corporation and Subsidiary Companies 2019 2018 2017 $ 9,431 $ 8,728 $ 5,753 4,209 1,850 679 (1,527) (1,096) 3,127 1,353 510 853 123 3,021 1,520 534 (931) 14 502 301 1,006 1,368 (127) (1.819) 1,297 1,014 18 67 858 (503) 14.770 126 4,437 47 16,724 15,247 (3,229) 460 ($ in millions) For the year ended December 31: Cash flows from operating activities Net income Adjustments to reconcile net income to cash provided by operating activities Depreciation Amortization of intangibles Stock-based compensation Deferred taxes Net (gain)/loss on asset sales and other Change in operating assets and liabilities, net of acquisitions/divestitures Receivables (including financing receivables) Retirement related Inventory Other assets/other liabilities Accounts payable Net cash provided by operating activities Cash flows from investing activities Payments for property, plant and equipment Proceeds from disposition of property, plant and equipment Investment in software Purchases of marketable securities and other investments Proceeds from disposition of marketable securities and other investments Non-operating finance receivables-net Acquisition of businesses, net of cash acquired Divestiture of businesses, net of cash transferred Net cash provided by/(used in) investing activities Cash flows from financing activities Proceeds from new debt Payments to settle debt Short-term borrowings/(repayments) less than 90 days-net Common stock repurchases Common stock repurchases for tax withholdings Financing-other Cash dividends paid Net cash provided by/(used in) financing activities Effect of exchange rate changes on cash, cash equivalents and restricted cash Net change in cash, cash equivalents and restricted cash Cash, cash equivalents and restricted cash at January 1 Cash, cash equivalents and restricted cash at December 31 Supplemental data Income taxes paid-net of refunds received Interest paid on debt Amounts may not add due to rounding, The accompanying notes are an integral part of the financial statements. (2.286) 537 (621) (3,693) 3,961 6.720 (32.630) 1,076 (26,936 (3,395) 248 (569) (7.041) 6,487 (503) (139) (544) (4.949) 3,910 (2,028 (496) (205) (7,081) (4,913) 31,825 (12,944) (2.597) (1,361) (272) 99 (5,707) 9,042 (167) (3.290) 11,604 $ 8,314 6,891 (8,533) 1,341 (4,443) (171) 111 (5,666) (10,469) (495) (630) 12,234 $ 11,604 9,643 (6.816) 620 (4,340) (193) 175 (5,506) (6,418) 937 4,161 8,073 $12,234 $ 2,091 $ 1,685 $ 1,745 $ 1,423 $ 1,597 $ 1,208 72 Consolidated Statement of Equity International Business Machines Corporation and Subsidiary Companies Non- Controlling Interests Total Equity $146 $18,392 102 5,753 2,806 $ 8,559 (5,506) 631 (116) (4,323) 0 (15) $17,725 (15) $131 ($ in millions except per share amounts) Common Accumulated Stock and Other Total IBM Additional Retained Treasury Comprehensive Stockholders' Pald-In Capital Earnings Stock Income/(Loss) Equity 2017 Equity, January 1, 2017 $53,935 $152,759 $(159,050) $(29,398) $18,246 Cumulative effect of change in accounting principle 102 102 Net income plus other comprehensive income/(loss) Net income 5,753 5,753 Other comprehensive income/(loss) 2,806 2,806 Total comprehensive income/(loss) $ 8,559 Cash dividends paid- common stock ($5.90 per share) (5,506) (5,506) Common stock issued under employee plans (4,311,998 shares) 631 631 Purchases (1,226,080 shares) and sales (463,083 shares) of treasury stock under employee plans-net 18 (134) (116) Other treasury shares purchased, not retired (27,237,179 shares) (4,323) (4,323) Changes in other equity 0 0 Changes in noncontrolling interests Equity, December 31, 2017 $54,566 $153,126 $(163,507) $(26,592) $17,594 Reflects the adoption of the FA5B guidance on intra-entity transfers of assets. Amounts may not add due to rounding The accompanying notes are an integral part of the financial statements. ($ in millions except per share amounts) Common Accumulated Stock and Other Total IBM Additional Retained Treasury Comprehensive Stockholders' Paid-In Capital Earnings Stock Income/(Loss) Equity 2018 Equity, January 1, 2018 $54,566 $153,126 $(163,507) $(26,592) $17,594 Cumulative effect of change in accounting principle Revenue" 580 580 Stranded tax effects/other* 2,422 (2,422) Net income plus other comprehensive income/(loss) Net income 8,728 8,728 Other comprehensive income/(loss) (476) (476) Total comprehensive income/(loss) $ 8,252 Cash dividends paid- common stock ($6.21 per share) (5,666) (5,666) Common stock issued under employee plans (3,998,245 shares) 585 585 Purchases (1,173,416 shares) and sales (424,589 shares) of treasury stock under employee plans-net 15 (117) (103) Other treasury shares purchased, not retired (32,949,233 shares) (4,447) (4,447 0 Changes in other equity 0 0 Changes in noncontrolling interests Equity, December 31, 2018 $55,151 $159,206 $(168,071) $(29,490) $16,796 * Reflects the adoption of FASB guidance. Refer to note B, "Accounting Changes." Amounts may not add due to rounding Non- Controlling Interests Total Equity $131 $17,725 580 8,728 (476) $ 8,252 (5,666) 585 (103) (4,447) 0 3 $16,929 3 $134 73 Consolidated Statement of Equity International Business Machines Corporation and Subsidiary Companies Accumulated Other Total IBM Treasury Comprehensive Stockholders' Stock Income/(Loss) Equity Non- Controlling Interests Total Equity $(168,071) $(29,490) $16,796 $134 $16,929 9,431 9,431 893 893 893 $10,324 $10.324 (5,707) (5,707) ($ in millions except per share amounts) Common Stock and Additional Retained Pald-In Capital Earnings 2019 Equity, January 1, 2019 $55,151 $159,206 Net Income plus other comprehensive income/(loss) Net income 9,431 Other comprehensive income/(loss) Total comprehensive income/(loss) Cash dividends paid- common stock ($6.43 per share) (5,707) Common stock issued under employee plans (4,569,917 shares) 745 Purchases (2,000,704 shares) and sales (2,041,347 shares) of treasury stock under employee plans-net 30 Other treasury shares purchased, not retired (9,979,516 shares) Changes in other equity (5) Changes in noncontrolling interests Equity, December 31, 2019 $55,895 $162,954 Amounts may not add due to rounding. The accompanying notes are an integral part of the financial statements. 745 745 (11) 19 19 (1,331) (1,331) (5) (1,331) (5) 10 $20,985 10 $144 $(169,413) $(28,597) $20,841 139 Five-Year Comparison of Selected Financial Data International Business Machines Corporation and Subsidiary Companies ($in millions except per share amounts) For the year ended December 31: Revenue Income from continuing operations Income/(loss) from discontinued operations, net of tax Net income Operating (non-GAAP) earnings** Earnings/(loss) per share of common stock: Assuming dilution: Continuing operations Discontinued operations Total 2019 $ 77,147 $ 9,435 $ (4) $ 9,431 $ 11,436 2018 $ 79,591 $ 8,723 $ 5 $ 8,728 $ 12,657 2017 $ 79,139 $ 5,758 $ (5) $ 5,753 $ 12.807 2016 $ 79,919 $ 11,881 $ (9) $ 11,872 $ 12,880 2015 $ 81,741 $ 13,364 $ (174) $ 13,190 $ 14,519 $ 10.57 $ (0.01) $ 10,56 $ $ 9.51 0.01 9.52 $ $ 6.14 0.00 6.14 $ 12.39 $ (0.01) $ 12.38 $ 13,60 $ (0.18) $ 13.42 $ $ $ Basic: Continuing operations Discontinued operations Total Diluted operating (non-GAAP)** Cash dividends paid on common stock Investment in property, plant and equipment Return on IBM stockholders' equity $ 10.63 $ 0.00 $ 10.63 12.81 $ 5,707 $ 2.286 52.6% $ 9.56 0.01 $ 9.57 $ 13.81 $ 5,666 $ 3,395 48.0% $ 6.17 $ 0.00 6.17 $ 13.66 $ $ 12.44 $ (0.01) $ 12.43 $ 13,44 $ 5,256 $ 3,567 74.0% $ 13.66 $ (0.18) $ 13.48 $ 14.77 $ 4,897 $ 3,579 101.1% $ 5,506 $ 3.229 31.1% At December 31: Total assets Net investment in property, plant and equipment Working capital Total debt Total equity 2019 $152,186 $ 10,010 $ 718 $ 62,899 $ 20,985 2018 $123,382 $ 10,792 $ 10,918 $ 45,812 $ 16,929 2017 $125,356 $ 11,116 $ 12,373 $ 46,824 $ 17.725 2016 $117,470 $ 10,830 $ 7,613 $ 42.169 $ 18,392 2015 $110,495 $ 10,727 $ 8,235 $ 39,890 $ 14,424 * The company acquired Red Hat on July 9, 2019. impacting 2019 results, **Heter to the table below for the reconciliation of non-GAAP financial information for 2017, 2016 and 2015, Also see "GAAP Reconciliation," on page 46 for the reconciliation of non-GAAP Financial information for 2019 and 2018. + Reter to "IBM Working Capital" on page 43 for additional information GAAP Reconciliations The table below provides a reconciliation of the company's income and diluted earnings per share from continuing operations as reported under GAAP to its operating earnings presentation which is a non-GAAP measure. The company's calculation of operating (non-GAAP) earnings, as presented, may differ from similarly titled measures reported by other companies. Please refer to the -Operating (non-GAAP) Earnings" section for management's rationale for presenting operating earnings information. $ in millions except per share amounts) Acquisition- Related Adjustments Retirement Related Adjustments Tax Reform Charge Operating (non-GAAP) GAAP $ 5,758 $ 6.14 $ 718 $0.77 $ 856 $0.91 $5,475 $ 5.84 $12,807 $ 13.66 For the year ended December 31: 2017 Income from continuing operations Diluted earnings per share from continuing operations 2016 Income from continuing operations Diluted earnings per share from continuing operations 2015 Income from continuing operations Diluted earnings per share from continuing operations $11.881 $ 12.39 $ 735 $0.77 $ 265 $0.28 $12,880 $ 13.44 $13,364 $ 13.60 $ 562 $0.57 $ 593 $0.60 $14,519 $ 14.77 The following presents a reconciliation of annualized revenue, excluding divestitures and currency from 2012 to 2019: ($ in billions) 2011 Revenue Divestitures -1.3 pts. Approximate Impact From: Currency -2.2 pts. Performance -0.5 pts Total Impact -4.0 pts. 2019 Revenue $77.1 $106.9 140 Selected Quarterly Data International Business Machines Corporation and Subsidiary Companies ($ in millions except per share amounts) 2019 Revenue Gross profit Income from continuing operations Income/(loss) from discontinued operations, net of tax First Quarter $18,182 $ 8,043 $ 1,593 $ (2) $ 1,591 $ 2,009 Second Quarter $19,161 $ 9,010 $ 2,499 $ (1) $ 2,498 $ 2,827 Third Quarter $18,028 $ 8,336 $ 1,673 $ (1) $ 1,672 $ 2,394 Fourth Quarter $21,777 $11,100 $ 3,669 $ 0 Full Year $77,147 $36,488 $ 9,435 $ (4) $ 9,431 $11,436 Net income $ 3,670 $ 4,206 $ $ 1.78 $ 1,79 1.87 1.89 $ 2.81 $ 2.82 $ 4.11 $ 4.14 Operating (non-GAAP) earnings** Earnings per share of common stock- continuing operations Assuming dilution Basic Earnings per share of common stock-total+ Assuming dilution Basic Diluted operating (non-GAAP)** $ 10.57 $ 10.63 $ $ 1.78 $ 1.79 $ 2.25 $ 2.81 $ 2.82 $ 3.17 $ 1.87 $ 1.89 $ 2.68 $ 4.11 $ 4.14 $ 4.71 $ 10.56 $ 10.63 $ 12.81 Quarter $20,003 $9,199 ($ in millions except per share amounts) First Second Third Fourth 2018 Quarter Quarter Quarter Full Year Revenue $19,072 $18.756 $21,760 $79,591 Gross profit $ 8,247 $ 8,803 $10,687 $36,936 Income from continuing operations $ 1,675 $ 2,402 $ 2,692 $ 1,954 $ 8,723 Income/(loss) from discontinued operations, net of tax $ 4 $ 1 $ 2. $ (2) $ 5 Net income $ 1,679 $ 2,404 $ 2,694 $ 1,951 $ 8,728 Operating (non-GAAP) earnings** $ 2,272 $ 2,834 $ 3,134 $ 4,417 $12,657 Earnings per share of common stock- continuing operations Assuming dilution $ 1.81 $ 2.61 $ 2.94 $ 2.15 $ 9.51 Basic $ 1.82 $ 2.63 $ 2.95 $ 2.17 $ 9.56 Earnings per share of common stock-total* Assuming dilution $ 1.81 $ 2.61 $ 2.94 $ 2.15 $ 9.52 Basic $ 1.82 $ 2.63 $ 2.95 $ 2.17 $ 9.57 Diluted operating (non-GAAP)** $ 2.45 $ 3.08 $ 3.42 $ 4.87 $ 13.81 * The company acquired Red Hat on July 9, 2019, impacting third- and fourth-quarter results **Refer to page 74 of the company's first quarter 2019 Form 10-O filed on April 30, 2019, page 98 of the company's second-quarter 2019 Form 10-0 filed on July 30, 2019, page 102 of the company's third-quarter 2019 Form 10-0 filed on October 29, 2019, and page 52 under the heading "GAAP Reconciliation for the reconciliation of non-GAAP financial information for the quarterly periods of 2019 and 2018. Also see "GAAP Reconciliation," on page 46 for the reconciliation of non-GAAP financial information for full-year 2019 and 2018 * Earnings Per Share (EPS) in each quarter is computed using the weighted average number of shares outstanding during that quarter while EPS for the full year is computed using the weighted-average number of shares outstanding during the year. Thus, the sum of the four quarters' EPS does not equal the full-year EPS. 141 Performance Graphs International Business Machines Corporation and Subsidiary Companies required five-year graph. Under those rules, the second index used for comparison may be a published industry or line-of-business index. The S&P Information Technology Index is such an index IBM is also included in this index. COMPARISON OF ONE- AND FIVE-YEAR CUMULATIVE TOTAL RETURN FOR IBM, S&P 500 STOCK INDEX AND S&P INFORMATION TECHNOLOGY INDEX The following graphs compare the one and five-year cumulative total returns for IBM common stock with the comparable cumulative returns of certain Standard & Poor's (S&P) indices. Due to the fact that IBM is a company included in the S&P 500 Stock Index, the SEC's rules require the use of that index for the Each graph assumes $100 invested on December 31 (of the initial year shown in the graph) in IBM common stock and $100 invested on the same date in each of the S&P indices. The comparisons assume that all dividends are reinvested, One-Year Five-Year 160 300 140 250 120 200 100 80 150 60 100 V 40 50 20 0 0 12/18 3/19 6/19 9/19 12/19 14 15 16 17 18 19 One-Year (U.S. Dollar) - International Business Machines *** S&P 500 --- S&P Information Technology 12/2018 $100.00 100.00 100.00 3/2019 6/2019 $125.59 $124.22 113.65 118.54 119.86 127.13 9/2019 $132.50 120.55 131.37 12/2019 $123.57 131.49 150.29 Five-Year 2018 (U.S. Dollar) International Business Machines S&P 500 --- S&P Information Technology 2014 $100.00 100.00 100.00 2015 $ 88.59 101.38 105.92 2016 2017 $110.90 $106.49 113.51 138.29 120.59 167.42 $ 82.49 132.23 166.94 2019 $101.93 173.86 250.89