IBM announces changes to management system

Date: 20 Mar 2006 Monday

In this document, IBM is providing historical information to assist investors in understanding the new structure.

IBM announces changes to management system

IBM has made changes to its management system effective as of the first quarter of 2006. In accordance with SFAS No. 131, these changes will impact the company's reportable segments and will result in the reclassification of certain revenue and cost within its Consolidated Statement of Earnings. The changes do not impact IBM's total revenue, cost, expense, net income, earnings per share, Consolidated Statement of Financial Position or Consolidated Statement of Cash Flows.

In this document, IBM is providing historical information to assist investors in understanding the new structure. Specifically, IBM is providing unaudited reclassified information on the impacted line items of the quarterly Consolidated Statement of Earnings for 2005 and for the full year 2005, 2004 and 2003. In addition, the company is providing segment information for those same time periods. Subsequent to our earnings announcement and the filing of Form 10-Q for the first quarter of 2006, the company intends to file a Form 8-K reclassifying its financial statements and related footnotes to reflect these management system changes.

The changes to previously reported information are primarily driven by two events:

  • The transfer of products and services from the Enterprise Investments Segment to other reportable segments. These changes impact reportable segments and the revenue and cost classifications within the Consolidated Statement of Earnings.
  • Changes in the management system within Global Services. These changes impact the reportable segments, but not the Consolidated Statement of Earnings.

Enterprise Investments

The company reorganized the management of the products and services currently reported in the Enterprise Investment Segment, resulting in the dissolution of the Enterprise Investment Segment. The primary change is the transfer of the Product Lifecycle Management business to Software. In addition, certain investments and products previously managed as Enterprise Investments will now be included in the Software, Systems and Technology, and Services Segments. (See exhibits 2 and 3 for revised segments.) These changes will also be reflected in the Consolidated Statement of Earnings. (See exhibit 1 for the reclassified Consolidated Revenue and Cost.)

Global Services

The company has made changes in the management system of its Global Services business. These changes include the separation of the Global Services segment into two new reportable segments: Global Technology Services and Global Business Services. Accordingly, beginning with the first quarter of 2006, the company will report its financial results separately for these segments. (See exhibits 2 and 3 for revised segments.) We will continue to reflect our services business in one category within the Consolidated Statement of Earnings.

The two new services segments consist of the following:

Global Technology Services Segment primarily reflects infrastructure services, delivering value through our global scale, standardization, and automation. It includes outsourcing, both Strategic Outsourcing and Business Transformation Outsourcing, Integrated Technology Services and Maintenance.

Global Business Services Segment primarily reflects professional services, delivering business value and innovation to clients through solutions which leverage industry and business process expertise. It includes consulting, systems integration, and application management services.

The table below (table 1) reflects the new management system. In addition to the creation of two new reportable segments, there are two primary differences to previously reported information.

First, we have aligned the Business Transformation Outsourcing (BTO) business within the Global Technology Services Segment. This brings our outsourcing businesses together, and drives synergies within our offerings and delivery capabilities. US Federal BTO remains with the US Federal business within Global Business Services, to continue to leverage the synergy in our Federal offerings and delivery capabilities.

Second, the Application Management Services (AMS) business has been consolidated under our Global Business Services Segment. As a result, the AMS for custom and legacy applications previously reported in Strategic Outsourcing revenue will now be included in Global Business Services.

(See exhibit 4 for reclassified revenue information.)

New Management System - Global Services
Global Technology Services

Strategic outsourcing

Business Transformation Outsourcing

Integrated Technology Services

Maintenance

Global Business Services

Consulting, Systems Integration, And Application Management Services
 
Exhibit 1 : Consolidated revenue and cost
Exhibit 2 : Management System segment view
Exhibit 3 : Management System Segment view without incremental 2Q05 restructuring charge
Exhibit 4 : Services Segments External Revenue

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Reclassified consolidated revenue and cost* 2005, 2004 and 2003 (Unaudited).

Reclassified management system segment view* 2005, 2004 and 2003 (Unaudited).

Reclassified management system segment view 2005 By Quarter (Unaudited).

Reclassified management system segment view without incremental 2Q 2005 Restructuring Charges* 2005 by Quarter (Unaudited).

Reclassifiied global services segment external revenue* 2005 and 2004 (Unaudited).

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