2012 IBM Annual Report ANNUAL BUSINESS REPORT 2012 Created by Chris Wenzel: This is a hypothetical project used purely for educational purposes for the study of advance layout and typography. § 107 . Limitations on exclusive rights: Fair use40 Notwithstanding the provisions of sections 106 and 106A, the fair use of a copyrighted work, including such use by reproduction in copies or phonorecords or by any other means specified by that section, for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research, is not an infringement of copyright. 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The fact that a work is unpublished shall not itself bar a finding of fair use if such finding is made upon consideration of all the above factors. http://www.copyright.gov/title17/92chap1.html UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 FOR THE YEAR ENDED DECEMBER 31, 2010 1-2360 (Commission file number) INTERNATIONAL BUSINESS MACHINES CORPORATION (Exact name of registrant as specified in its charter) NEW YORK 13-0871985 (State of Incorporation) (IRS Employer Identification Number) ARMONK, NEW YORK 10504 (Address of principal executive offices) (Zip Code) 914-499-1900 (Registrant’s telephone number) Securities registered pursuant to Section 12(b) of the Act: Voting shares outstanding Name of each exchange Title of each class at February 10, 2011 on which registered Capital stock, par value $.20 per share 1,219,536,250 New York Stock Exchange Chicago Stock Exchange 4.00% Notes due 2011 New York Stock Exchange 4.95% Notes due 2011 New York Stock Exchange 6.625% Notes due 2014 New York Stock Exchange 7.50% Debentures due 2013 New York Stock Exchange 8.375% Debentures due 2019 New York Stock Exchange 7.00% Debentures due 2025 New York Stock Exchange 6.22% Debentures due 2027 New York Stock Exchange 6.50% Debentures due 2028 New York Stock Exchange 7.00% Debentures due 2045 New York Stock Exchange 7.125% Debentures due 2096 New York Stock Exchange Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes ፤ No អ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes អ No ፤ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ፤ No អ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ፤ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ፤ No អ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of ‘‘accelerated filer,’’ ‘‘large accelerated filer’’ and ‘‘smaller reporting company’’ in Rule 12b-2 of the Exchange Act. Large accelerated filer ፤ Accelerated filer អ Non-Accelerated filer អ Smaller reporting company អ (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes អ No ፤ The aggregate market value of the voting stock held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed second fiscal quarter was $155.7 billion. Documents incorporated by reference: Portions of IBM’s Annual Report to Stockholders for the year ended December 31, 2010 into Parts I, II and IV of Form 10-K. Portions of IBM’s definitive Proxy Statement to be filed with the Securities and Exchange Commission and delivered to stockholders in connection with the Annual Meeting of Stockholders to be held April 26, 2011 are incorporated by reference into Part III of Form 10-K. A LETTER FROM THE CHAIRMAN 4 A LETTER FROM THE CHAIRMAN A LETTER FROM THE CHAIRMAN 5 Dear IBM Investor: I am pleased to report that in 2012, IBM achieved record operating earnings per share, record free cash flow and record profit margins, withRoad revenues Map objective that were of at flatleast at $20 constant of operating currency. earnings Operating per share.earnings per share were up 13 percent, putting us well on track to our 2015 Importantly, we continued to deliver value to you, our owners. This performance is a testament to our strategic position Investment and return to shareholders: In 2012 we and capabilities, the discipline of our management invested $3.7 billion for 11 acquisitions in key areas systems, and the dedication and expertise of more than of software and services; $4.3 billion in net capital 430,000 IBMers around the world. Importantly, it reflects expenditures; and $6.3 billion in R&D. We were able to the impact of a distinct choice we have made about return $15.8 billion to you—$12 billion through share IBM’s business and technology model. repurchases and $3.8 billion through dividends. Last IBM is an innovation company. Both in what we do and year’s dividend increase was 13 percent, marking the in how we do it, we pursue continuous transformation— 17th year in a row in which we have raised our dividend, always remixing to higher value in our portfolio and skills, and the 97th consecutive year in which we have paid one. in the capabilities we deliver to our clients and in our own operations and management practices. Since 2000, we have added $14.6 billion to IBM’s This is not the only path to success in our industry, operating pre-tax profit base, and increased our pre-tax and it is not the easiest one. But it is ours. In this letter, income 1.7 times, our operating earnings per share 3.6 I will report on our 2012 results, and then put them in times and our free cash flow 1.7 times.Cumulatively, we context of our model of continuous transformation. have generated about $150 billion of free cash flow. Results in 2012 IBM’s Model: Continuous Transformation Earnings per share: Diluted operating earnings per In an industry characterized by a relentless cycle of share in 2012 were $15.25, a new record. This marked innovation and commoditization, one model for success 10 straight years of double-digit EPS growth. is that of the commodity player—winning through low price, efficiency and economies of scale. Ours is a Margins: IBM’s operating pre-tax income margin rose different choice: the path of innovation, reinvention and for the 10th consecutive year—to 22.2 percent, up 12 shift to higher value. points since 2000. We remix to higher value: We do so in our portfolio, Cash flow: IBM has consistently generated strong cash in our organic R&D investment, and through targeted flow, a key indicator of real business performance. In acquisitions and divestitures. 2012 our free cash flow was $18.2 billion, a record for • We remix our research and development: Two IBM and $12 billion higher than a decade ago. We ended decades ago, 70 percent of our researchers were 2012 with $11.1 billion of cash and marketable securities. working in materials science, hardware and related technology. Even the one-in-ten working in software Revenue and income: Our revenue in 2012 was $104.5 were focused on operating systems and compilers. billion, down 2 percent as reported and flat at constant Today, 60 percent are in fields that support our key currency. We grew operating net income by 8 percent, to growth initiatives, such as the 400 mathematicians $17.6 billion, our highest ever. developing algorithms for business analytics, as well as a diverse group on specialists that include 6 A LETTER FROM THE CHAIRMAN medical doctors, computational biologists, experts We make markets: We create new markets by in natural language processing, and weather and category, by geography and by client. climate forecasters. Since the beginning of 2010, we have spent $19 billion on R&D, and in 2012 IBM • We make markets by category: Our software and earned the most U.S. patents for the 20th straight services businesses today look very different from just year, with a record total of 6,478.