International Business Machines Corp. (IBM) | Analysis of Investments

Investment Accounting Policy

Cash Equivalents

All highly liquid investments with maturities of three months or less at the date of purchase are considered to be cash equivalents.

Marketable Securities

Debt securities included in current assets represent securities that are expected to be realized in cash within one year of the balance sheet date. Long-term debt securities that are not expected to be realized in cash within one year and alliance equity securities are included in investments and sundry assets. Debt and marketable equity securities are considered available for sale and are reported at fair value with unrealized gains and losses, net of applicable taxes, recorded in other comprehensive income/(loss). The realized gains and losses for available-for-sale securities are included in other (income) and expense in the Consolidated Statement of Earnings. Realized gains and losses are calculated based on the specific identification method.

In determining whether an other-than-temporary decline in market value has occurred, IBM considers the duration that, and extent to which, the fair value of the investment is below its cost, the financial condition and near-term prospects of the issuer or underlying collateral of a security; and IBM's intent and ability to retain the security in order to allow for an anticipated recovery in fair value. Other-than-temporary declines in fair value from amortized cost for available-for-sale equity and debt securities that IBM intends to sell or would more-likely-than-not be required to sell before the expected recovery of the amortized cost basis are charged to other (income) and expense in the period in which the loss occurs. For debt securities that IBM has no intent to sell and believes that it more-likely-than-not will not be required to sell prior to recovery, only the credit loss component of the impairment is recognized in other (income) and expense, while the remaining loss is recognized in other comprehensive income/(loss). The credit loss component recognized in other (income) and expense is identified as the amount of the principal cash flows not expected to be received over the remaining term of the debt security as projected using IBM's cash flow projections.

Source: International Business Machines Corp., Annual Report

Adjustment to Net Income (Loss): Mark to Market Available-for-sale Securities

International Business Machines Corp., adjustment to Net Income

	12 months ended	Dec 31, 2011	Dec 31, 2010	Dec 31, 2009	Dec 31, 2008	Dec 31, 2007
	Net income (as reported)
	Add: Net changes related to available-for-sale securities, net of tax amount
	Net income (adjusted)

Adjusted Ratios: Mark to Market Available-for-sale Securities (Summary)

International Business Machines Corp., adjusted ratios

		Dec 31, 2011	Dec 31, 2010	Dec 31, 2009	Dec 31, 2008	Dec 31, 2007
	Net Profit Margin
	Reported net profit margin	%	%	%	%	%
	Adjusted net profit margin	%	%	%	%	%
	Return on Equity (ROE)
	Reported ROE	%	%	%	%	%
	Adjusted ROE	%	%	%	%	%
	Return on Assets (ROA)
	Reported ROA	%	%	%	%	%
	Adjusted ROA	%	%	%	%	%

Adjusted Net Profit Margin

		Dec 31, 2011	Dec 31, 2010	Dec 31, 2009	Dec 31, 2008	Dec 31, 2007
	As Reported
	Net income (USD $ in millions)
	Revenue (USD $ in millions)
	Net profit margin1	%	%	%	%	%
	Adjusted: Mark to Market Available-for-sale Securities
	Adjusted net income (USD $ in millions)
	Revenue (USD $ in millions)
	Adjusted net profit margin2	%	%	%	%	%

2011 Calculations

Adjusted Return On Equity (ROE)

		Dec 31, 2011	Dec 31, 2010	Dec 31, 2009	Dec 31, 2008	Dec 31, 2007
	As Reported
	Net income (USD $ in millions)
	IBM stockholders’ equity (USD $ in millions)
	ROE1	%	%	%	%	%
	Adjusted: Mark to Market Available-for-sale Securities
	Adjusted net income (USD $ in millions)
	IBM stockholders’ equity (USD $ in millions)
	Adjusted ROE2	%	%	%	%	%

2011 Calculations

Adjusted Return On Assets (ROA)

		Dec 31, 2011	Dec 31, 2010	Dec 31, 2009	Dec 31, 2008	Dec 31, 2007
	As Reported
	Net income (USD $ in millions)
	Total assets (USD $ in millions)
	ROA1	%	%	%	%	%
	Adjusted: Mark to Market Available-for-sale Securities
	Adjusted net income (USD $ in millions)
	Total assets (USD $ in millions)
	Adjusted ROA2	%	%	%	%	%

2011 Calculations