12 Mar 2007
In the fourth quarter 2006 earnings presentation, IBM stated its intent to focus its discussions of financial performance on the IBM segment view, as this is how the business is managed and is the best reflection of the company's strategy.
Beginning with the release of first quarter 2007 earnings in April, IBM will change the presentation of revenue and gross margin in its earnings press release to reflect this segment focus. As a result of this change, IBM will now provide external segment gross profit dollars and gross profit margins for all its segments, including the two services segments individually. In the schedules below, IBM is providing historical revenue and gross margin information for the segments.
Prior to the fourth quarter of 2006, the segment view for software and services was consistent with the same categories in the consolidated statement of earnings. As the company continues to move its strategic direction towards delivering solutions which bring integrated software and services capabilities to our clients, the alignment between segment and categories will diverge over time. To avoid confusion between the segment view and the consolidated statement of earnings, IBM intends to change its presentation of revenue and cost in its consolidated statement of earnings in future 10-K and 10-Q filings to the categories of sales, services, and financing beginning with the first quarter 2007 10-Q.
These changes only impact the formats for the primary reporting of IBM's revenue and gross profit details, and do not reflect any changes in the company's reportable segment results or in the company's organization.
Summary of changes and new disclosure:
- Earnings press release format: IBM is providing an example of the new press release format, which will now include external segment revenue and gross profit in the Comparative Financial Results Exhibit (Schedule 1). There is no change to the existing Consolidated Statement of Financial Position and Segment exhibits
- Historical segment gross profit: IBM is providing 2004, 2005, and 2006 by quarter for external segment revenue, gross profit, and gross profit margin (Schedule 2). The only information provided in this view which has not been previously disclosed is the external gross profit dollars and gross profit margins for the individual Global Technology Services and Global Business Services segments as well as "Other."
- Consolidated statement of earnings: IBM is providing an example of the Consolidated Statement of Earnings that will reflect the revenue and cost categories of Services, Sales, and Financing. In this construct, Hardware and Software have been categorized as Sales, and "Other", which represented a very small component of revenue and cost, has been reclassified to the category consistent with the activity (Schedule 3). This change does not impact previously reported total revenue, cost, earnings, or cash flow.
See the following schedules for these changes:
Schedule 1 : Comparative financial results exhibit – Press release format
Schedule 2 : External segment revenue and gross profit history
Schedule 3 : Consolidated statement of earnings in 10-Q and 10-K filings
Schedule 2: continued
Schedule 2: continued