Business Machines : IBM provides historical data in preparation for 2016 segment reporting change

During IBM's investor briefing on February 25, 2016, senior management discussed a number of changes to its management system and organizational structure as IBM evolves into a cognitive solutions and cloud platform company. With the changes, the company is updating its reported segments. There is no change to IBM consolidated results.

The company will implement the new segment structure starting with first quarter 2016 results, which will be reported in mid-April. Today, the company is providing a view of the segment results on the new basis for the last 2 years, to allow investors to update their historical financial models in advance of the first quarter earnings report. The two attached exhibits provide data for 2014 and 2015 under the new segment structure:

Exhibit 1: Reclassified Management System Segment View (83KB)

Exhibit 2: Additional Revenue and Gross Profit Information (52KB)

A description of the segment reporting changes was provided in an article posted to IBM's investor website on February 25. The posting also references additional information to be provided going forward, including information on the company's strategic imperatives by segment. The February 25 article is attached below, and also available on IBM's investor website, along with a replay of IBM's Investor Briefing.

IBM Updates Reporting Segments

IBM Emerging as a Cognitive Solutions and Cloud Platform Company

25 Feb 2016

IBM has been transforming its business, addressing the evolving needs of its clients, while continuing to support their most critical business processes. During IBM's investor briefing on February 25, Ginni Rometty and the senior management team discussed the progress of the company's transformation, and described how IBM is becoming more than a hardware, software and services company; it is emerging as a cognitive solutions and cloud platform company. Information on the event is available on IBM's investor website at http://www.ibm.com/investor/events/investor0216.html

To support this transformation, the company has made a number of changes to its management system and organizational structure. Segment reporting reflects the way the company analyzes business results and allocates resources. With the management system and organizational changes, IBM is updating its reported segments, effective January 1, 2016. To be clear, there is no change to IBM consolidated results.

Primary Changes

The primary changes are driven by realignment of IBM's software portfolio, as software value shifts to new areas.

• The company has created a cognitive solutions business. This encompasses the solutions units addressing many of the strategic areas, including analytics, commerce and security, several of the new initiatives around Watson, Watson Health, Watson IoT, and Transaction Processing software. Many of these are new opportunity areas, opening up incremental revenue and profit pools.
• Integration software, including WebSphere, has been brought together with IBM's cloud infrastructure and platform capabilities and Global Technology Service, reflecting the importance of integration software to enterprise-grade hybrid clouds.
• Operating systems software has been more closely aligned with the underlying hardware platforms.

The company has also realigned a portion of the software support revenue, which was previously reported in the Integrated Technology Services line of Global Technology Services, to the underlying software product areas. In addition, the company has also changed the allocation of some expenses between segments to better reflect the current portfolio structure.

The company has also evolved the management system within some of its businesses, as it addresses the changing business environment.

The company will report revenue and pre-tax income for each segment. Revenue will be reported by the line items noted in the table above. This better reflects the way the business is managed today, and is a more contemporary presentation of results.

External gross profit and gross profit margin will continue to be reported by segment. In the case of Technology Services & Cloud Platforms, the company will also provide a view of the services and software gross margins. Similarly, for the Systems segment, the company will report hardware and software gross margins.

While the Software segment will no longer exist as a stand-alone unit, the software revenue is clearly visible within the Technology Services & Cloud Platforms, Cognitive Solutions, and Systems segments. Given the current focus on IBM's software revenue performance, the company will continue to report total software revenue performance throughout 2016.

In addition, the company plans to provide additional information on its strategic imperatives by segment.

The net effect is alignment with IBM's current management system, and provides investors with additional transparency on the drivers of our business.

What to Expect Over the Next 2 Months

Today, the company is providing an overview of the new reported segments, and how they relate to the prior segments. Before the end of March, the company will provide a view of the segment results for 2014 and 2015 by quarter, so that investors may update their historical models. The company will report on the new reporting basis starting with first quarter 2016 results in April.

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IBM - International Business Machines Corporation issued this content on 31 March 2016 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 31 March 2016 20:20:12 UTC

Original Document: http://www.ibm.com/investor/article/mar2016.html