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International Business Machines Corp. (IBM)

Analysis of Operating Leases

High level of difficulty

An operating lease is treated like a rental contract. Neither the leased asset nor the associated liability is reported on the lessee balance sheet, but the rights may be very similar to the rights of an owner. The lessee only records the lease payments as a rental expense in income statement.

Present Value of Future Operating Lease Payments (before Adoption of FASB Topic 842)

International Business Machines Corp., future operating lease payments (before adoption of FASB Topic 842)

US$ in millions

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Total undiscounted future operating lease payments 5,628  6,568  6,883  6,434  6,152 
Discount rate1 2.78% 2.51% 2.68% 2.58% 2.36%
 
Total present value of future operating lease payments 5,192  6,095  6,314  5,925  5,699 

Based on: 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-24).

1 Weighted-average interest rate for International Business Machines Corp.’s debt

Year Future operating lease payments (as reported) Year Future operating lease payments (estimated) Present value at 2.78%
2019 1,581  2019 1,581  1,538 
2020 1,233  2020 1,233  1,167 
2021 914  2021 914  842 
2022 640  2022 640  574 
2023 445  2023 445  388 
2024 and thereafter 815  2024 445  377 
2025 370  305 
Total: 5,628  5,628  5,192 

Based on: 10-K (filing date: 2019-02-26).

Year Future operating lease payments (as reported) Year Future operating lease payments (estimated) Present value at 2.51%
2018 1,614  2018 1,614  1,574 
2019 1,453  2019 1,453  1,383 
2020 1,143  2020 1,143  1,061 
2021 829  2021 829  751 
2022 633  2022 633  559 
2023 and thereafter 896  2023 633  546 
2024 263  221 
Total: 6,568  6,568  6,095 

Based on: 10-K (filing date: 2018-02-27).

Year Future operating lease payments (as reported) Year Future operating lease payments (estimated) Present value at 2.68%
2017 1,414  2017 1,414  1,377 
2018 1,328  2018 1,328  1,260 
2019 1,218  2019 1,218  1,125 
2020 1,016  2020 1,016  914 
2021 796  2021 796  697 
2022 and thereafter 1,111  2022 796  679 
2023 315  262 
Total: 6,883  6,883  6,314 

Based on: 10-K (filing date: 2017-02-28).

Year Future operating lease payments (as reported) Year Future operating lease payments (estimated) Present value at 2.58%
2016 1,347  2016 1,347  1,313 
2017 1,231  2017 1,231  1,170 
2018 1,107  2018 1,107  1,026 
2019 985  2019 985  890 
2020 776  2020 776  683 
2021 and thereafter 988  2021 776  666 
2022 212  177 
Total: 6,434  6,434  5,925 

Based on: 10-K (filing date: 2016-02-23).

Year Future operating lease payments (as reported) Year Future operating lease payments (estimated) Present value at 2.36%
2015 1,350  2015 1,350  1,319 
2016 1,161  2016 1,161  1,108 
2017 988  2017 988  921 
2018 848  2018 848  772 
2019 754  2019 754  671 
2020 and thereafter 1,051  2020 754  656 
2021 297  252 
Total: 6,152  6,152  5,699 

Based on: 10-K (filing date: 2015-02-24).

Adjustments to Financial Statements for Operating Leases

International Business Machines Corp., adjustments to financial statements

US$ in millions

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Adjustment to Total Assets
Total assets (as reported) 123,382  125,356  117,470  110,495  117,532 
Add: Operating lease right-of-use asset (before adoption of FASB Topic 842)1 5,192  6,095  6,314  5,925  5,699 
Total assets (adjusted) 128,574  131,451  123,784  116,420  123,231 
Adjustment to Total Debt
Total debt (as reported) 45,812  46,824  42,168  39,889  40,804 
Add: Operating lease liability (before adoption of FASB Topic 842)2 5,192  6,095  6,314  5,925  5,699 
Total debt (adjusted) 51,004  52,919  48,482  45,814  46,503 

Based on: 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-24).

1, 2 Equal to total present value of future operating lease payments.

International Business Machines Corp., Financial Data: Reported vs. Adjusted

Adjusted Financial Ratios for Operating Leases (Summary)

International Business Machines Corp., adjusted financial ratios

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Total Asset Turnover1
Reported total asset turnover 0.65 0.63 0.68 0.74 0.79
Adjusted total asset turnover 0.62 0.60 0.65 0.70 0.75
Debt to Equity2
Reported debt to equity 2.73 2.66 2.31 2.80 3.44
Adjusted debt to equity 3.04 3.01 2.66 3.21 3.92
Return on Assets3 (ROA)
Reported ROA 7.07% 4.59% 10.11% 11.94% 10.23%
Adjusted ROA 6.79% 4.38% 9.59% 11.33% 9.76%

Based on: 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-24).

1 See details »

2 See details »

3 See details »

Financial ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. International Business Machines Corp.’s adjusted total asset turnover ratio deteriorated from 2016 to 2017 but then slightly improved from 2017 to 2018.
Adjusted debt to equity A solvency ratio calculated as adjusted total debt divided by total shareholders’ equity.
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. International Business Machines Corp.’s adjusted ROA deteriorated from 2016 to 2017 but then slightly improved from 2017 to 2018.

International Business Machines Corp., Financial Ratios: Reported vs. Adjusted

Adjusted Total Asset Turnover

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (US$ in millions)
Revenue 79,591  79,139  79,919  81,741  92,793 
Total assets 123,382  125,356  117,470  110,495  117,532 
Activity Ratio
Total asset turnover1 0.65 0.63 0.68 0.74 0.79
Adjusted for Operating Leases
Selected Financial Data (US$ in millions)
Revenue 79,591  79,139  79,919  81,741  92,793 
Adjusted total assets 128,574  131,451  123,784  116,420  123,231 
Activity Ratio
Adjusted total asset turnover2 0.62 0.60 0.65 0.70 0.75

Based on: 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-24).

2018 Calculations

1 Total asset turnover = Revenue ÷ Total assets
= 79,591 ÷ 123,382 = 0.65

2 Adjusted total asset turnover = Revenue ÷ Adjusted total assets
= 79,591 ÷ 128,574 = 0.62

Activity ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. International Business Machines Corp.’s adjusted total asset turnover ratio deteriorated from 2016 to 2017 but then slightly improved from 2017 to 2018.

Adjusted Debt to Equity

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (US$ in millions)
Total debt 45,812  46,824  42,168  39,889  40,804 
Total IBM stockholders’ equity 16,796  17,594  18,246  14,262  11,868 
Solvency Ratio
Debt to equity1 2.73 2.66 2.31 2.80 3.44
Adjusted for Operating Leases
Selected Financial Data (US$ in millions)
Adjusted total debt 51,004  52,919  48,482  45,814  46,503 
Total IBM stockholders’ equity 16,796  17,594  18,246  14,262  11,868 
Solvency Ratio
Adjusted debt to equity2 3.04 3.01 2.66 3.21 3.92

Based on: 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-24).

2018 Calculations

1 Debt to equity = Total debt ÷ Total IBM stockholders’ equity
= 45,812 ÷ 16,796 = 2.73

2 Adjusted debt to equity = Adjusted total debt ÷ Total IBM stockholders’ equity
= 51,004 ÷ 16,796 = 3.04

Solvency ratio Description The company
Adjusted debt-to-equity A solvency ratio calculated as adjusted total debt divided by total shareholders’ equity.

Adjusted Return on Assets (ROA)

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (US$ in millions)
Net income attributable to IBM 8,728  5,753  11,872  13,190  12,022 
Total assets 123,382  125,356  117,470  110,495  117,532 
Profitability Ratio
ROA1 7.07% 4.59% 10.11% 11.94% 10.23%
Adjusted for Operating Leases
Selected Financial Data (US$ in millions)
Net income attributable to IBM 8,728  5,753  11,872  13,190  12,022 
Adjusted total assets 128,574  131,451  123,784  116,420  123,231 
Profitability Ratio
Adjusted ROA2 6.79% 4.38% 9.59% 11.33% 9.76%

Based on: 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-24).

2018 Calculations

1 ROA = 100 × Net income attributable to IBM ÷ Total assets
= 100 × 8,728 ÷ 123,382 = 7.07%

2 Adjusted ROA = 100 × Net income attributable to IBM ÷ Adjusted total assets
= 100 × 8,728 ÷ 128,574 = 6.79%

Profitability ratio Description The company
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. International Business Machines Corp.’s adjusted ROA deteriorated from 2016 to 2017 but then slightly improved from 2017 to 2018.