Edgar Filing: INTERNATIONAL BUSINESS MACHINES CORP

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report: March 31, 2016

(Date of earliest event reported)

INTERNATIONAL BUSINESS MACHINES CORPORATION

(Exact name of registrant as specified in its charter)

New York		1-2360		13-0871985
(State of Incorporation)		(Commission File Number)		(IRS employer Identification No.)

ARMONK, NEW YORK		10504
(Address of principal executive offices)		(Zip Code)

914-499-1900

(Registrant’s telephone number)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 8.01 (Other Events)

On March 31, 2016, IBM posted information on its Investor Relations website (www.ibm.com/investor/) providing historical financial information regarding previously announced updates to the company’s reporting segments. Attachment I of this Form 8-K contains the information that was posted on IBM’s Investor Relations website.

IBM’s web site (www.ibm.com) contains a significant amount of information about IBM, including financial and other information for investors (www.ibm.com/investor/). IBM encourages investors to visit its various web sites from time to time, as information is updated and new information is posted.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.


Date: March 31, 2016


	By:	/s/ Stanley J. Sutula III
		Stanley J. Sutula III
		Vice President and Controller
		(Chief Accounting Officer)

ATTACHMENT I

IBM provides historical data in preparation for 2016 segment reporting change
IBM Emerging as a Cognitive Solutions and Cloud Platform Company

31 March 2016

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

Exhibit 2: Additional Revenue and Gross Profit Information

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 February 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 Services business, 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.

Summary of Segment Changes

2015 Reporting Structure		2016 Reporting Structure

Software	Software Value Shifting	Cognitive Solutions
· Key Branded Middleware	· Solutions SW	· Solutions Software
· Other Middleware	· Transaction Processing SW	· Transaction Processing Software
· Operating Systems	· Integration SW
· Other Software & Services	· Operating Systems SW

Global Business Services		Global Business Services
· Consulting & Systems Integration		· Consulting
· GBS Outsourcing (AMS SO & GPS)		· Global Process Services
		· Application Management

Global Technology Services		Technology Services &
		Cloud Platforms
· Strategic Outsourcing		· Infrastructure Services
· Integrated Technology Services		· Technical Support Services
· Maintenance		· Integration Software

Systems Hardware		Systems
· Systems Hardware		· Systems Hardware
		· Operating Systems Software

Global Financing		Global Financing

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.

Exhibit 1: Reclassified Management System Segment View (Unaudited)

March 31, 2016

International Business Machines Corporation

Management System Segment View

	Cognitive Solutions & Industry Services
($M)	Cognitive Solutions		Global Business Services		Technology Services & Cloud Platforms		Systems		Global Financing		Total Segments

1Q14
Total Revenue	4,956		5,105		9,805		2,970		1,129		23,966
External Revenue	4,355		4,964		9,589		2,709		512		22,128
Internal Revenue	602		141		216		261		617		1,838
Pre-tax Income	1,518		742		1,365		-201		596		4,020
Pre-tax Income Margin	31	%	15	%	14	%	-7	%	53	%	17	%

2Q14
Total Revenue	5,589		5,078		10,086		3,887		1,189		25,828
External Revenue	5,056		4,938		9,864		3,593		504		23,955
Internal Revenue	532		140		222		294		685		1,874
Pre-tax Income	2,108		990		1,894		560		593		6,145
Pre-tax Income Margin	38	%	19	%	19	%	14	%	50	%	24	%

3Q14
Total Revenue	4,987		4,975		9,744		3,284		1,084		24,074
External Revenue	4,464		4,840		9,517		2,997		487		22,305
Internal Revenue	523		135		226		287		598		1,769
Pre-tax Income	1,778		849		1,840		247		475		5,190
Pre-tax Income Margin	36	%	17	%	19	%	8	%	44	%	22	%

4Q14
Total Revenue	6,374		4,897		10,094		3,160		1,119		25,644
External Revenue	5,815		4,771		9,919		2,995		532		24,031
Internal Revenue	559		127		175		164		588		1,613
Pre-tax Income	2,811		766		1,985		777		526		6,865
Pre-tax Income Margin	44	%	16	%	20	%	25	%	47	%	27	%

2014
Total Revenue	21,906		20,055		39,729		13,300		4,522		99,512
External Revenue	19,689		19,512		38,889		12,294		2,034		92,418
Internal Revenue	2,216		543		840		1,006		2,488		7,093
Pre-tax Income	8,215		3,347		7,084		1,384		2,189		22,219
Pre-tax Income Margin	37	%	17	%	18	%	10	%	48	%	22	%

Exhibit 1 (Continued): Reclassified Management System Segment View (Unaudited)

March 31, 2016

International Business Machines Corporation

Management System Segment View

	Cognitive Solutions & Industry Services				Technology
($M)	Cognitive Solutions		Global Business Services		Services & Cloud Platforms		Systems		Global Financing		Total Segments

1Q15
Total Revenue	4,682		4,449		8,720		2,314		1,048		21,213
External Revenue	4,047		4,318		8,554		2,142		461		19,523
Internal Revenue	635		131		166		173		586		1,690
Pre-tax Income	1,528		588		1,131		261		515		4,023
Pre-tax Income Margin	33	%	13	%	13	%	11	%	49	%	19	%

2Q15
Total Revenue	5,049		4,475		9,071		2,730		1,182		22,506
External Revenue	4,516		4,345		8,898		2,541		478		20,778
Internal Revenue	532		130		173		189		704		1,728
Pre-tax Income	1,825		643		1,414		538		613		5,033
Pre-tax Income Margin	36	%	14	%	16	%	20	%	52	%	22	%

3Q15
Total Revenue	4,580		4,326		8,702		2,182		1,031		20,821
External Revenue	4,052		4,206		8,541		1,973		447		19,219
Internal Revenue	528		120		161		209		584		1,601
Pre-tax Income	1,596		664		1,317		248		562		4,387
Pre-tax Income Margin	35	%	15	%	15	%	11	%	54	%	21	%

4Q15
Total Revenue	5,744		4,415		9,347		3,099		1,216		23,821
External Revenue	5,225		4,297		9,149		2,892		454		22,015
Internal Revenue	520		118		198		207		763		1,806
Pre-tax Income	2,296		707		1,808		674		674		6,158
Pre-tax Income Margin	40	%	16	%	19	%	22	%	55	%	26	%

2015
Total Revenue	20,055		17,664		35,840		10,325		4,477		88,361
External Revenue	17,841		17,166		35,142		9,547		1,840		81,535
Internal Revenue	2,215		499		698		778		2,637		6,826
Pre-tax Income	7,245		2,602		5,669		1,722		2,364		19,602
Pre-tax Income Margin	36	%	15	%	16	%	17	%	53	%	22	%

Exhibit 2: Additional Revenue and Gross Profit Information (Unaudited)

March 31, 2016

International Business Machines Corporation

Cognitive Solutions	1Q14		2Q14		3Q14		4Q14		FY14		1Q15		2Q15		3Q15		4Q15		FY15

Total External Revenue	4,355		5,056		4,464		5,815		19,689		4,047		4,516		4,052		5,225		17,841
Solutions Software	2,798		3,257		2,861		3,932		12,847		2,655		3,053		2,710		3,604		12,021
Transaction Processing Software	1,557		1,799		1,604		1,883		6,842		1,393		1,464		1,343		1,620		5,819

Total Gross Profit $	3,724		4,399		3,829		5,133		17,085		3,418		3,873		3,418		4,479		15,189
Total Gross Profit %	85.5	%	87.0	%	85.8	%	88.3	%	86.8	%	84.5	%	85.7	%	84.4	%	85.7	%	85.1	%

Global Business Services	1Q14		2Q14		3Q14		4Q14		FY14		1Q15		2Q15		3Q15		4Q15		FY15

Total External Revenue	4,964		4,938		4,840		4,771		19,512		4,318		4,345		4,206		4,297		17,166
Consulting	2,305		2,323		2,253		2,177		9,057		1,946		1,955		1,863		1,915		7,678
Global Process Services	481		404		381		422		1,688		360		360		359		357		1,435
Application Management	2,178		2,211		2,206		2,172		8,767		2,012		2,034		1,981		2,025		8,053

Total Gross Profit $	1,450		1,472		1,498		1,503		5,923		1,184		1,192		1,249		1,212		4,837
Total Gross Profit %	29.2	%	29.8	%	30.9	%	31.5	%	30.4	%	27.4	%	27.4	%	29.7	%	28.2	%	28.2	%

Technology Services and Cloud Platforms	1Q14		2Q14		3Q14		4Q14		FY14		1Q15		2Q15		3Q15		4Q15		FY15

Total External Revenue	9,589		9,864		9,517		9,919		38,889		8,554		8,898		8,541		9,149		35,142
Infrastructure Services	6,364		6,481		6,339		6,349		25,533		5,614		5,817		5,714		5,929		23,075
Technical Support Services	2,072		2,109		2,104		1,992		8,276		1,881		1,881		1,841		1,823		7,426
Integration Software	1,153		1,274		1,075		1,578		5,080		1,059		1,200		986		1,397		4,641

Total Gross Profit $	4,167		4,354		4,126		4,565		17,213		3,597		3,754		3,607		4,056		15,014
Total Gross Profit %	43.5	%	44.1	%	43.4	%	46.0	%	44.3	%	42.1	%	42.2	%	42.2	%	44.3	%	42.7	%

Global Technology Services GP$	3,176		3,243		3,205		3,169		12,793		2,699		2,717		2,774		2,819		11,008
Global Technology Services GP%	37.7	%	37.8	%	38.0	%	38.0	%	37.8	%	36.0	%	35.3	%	36.7	%	36.4	%	36.1	%

Integration Software GP$	991		1,111		921		1,396		4,420		898		1,037		833		1,237		4,005
Integration Software GP%	86.0	%	87.2	%	85.7	%	88.5	%	87.0	%	84.8	%	86.4	%	84.5	%	88.6	%	86.3	%

Systems	1Q14		2Q14		3Q14		4Q14		FY14		1Q15		2Q15		3Q15		4Q15		FY15

Total External Revenue	2,709		3,593		2,997		2,995		12,294		2,142		2,541		1,973		2,892		9,547
Systems Hardware	2,142		3,014		2,432		2,404		9,991		1,657		2,056		1,491		2,370		7,574
Operating Systems Software	567		579		565		592		2,303		484		485		482		522		1,973

Total Gross Profit $	1,226		1,709		1,321		1,733		5,988		1,174		1,434		1,103		1,615		5,326
Total Gross Profit %	45.2	%	47.6	%	44.1	%	57.8	%	48.7	%	54.8	%	56.5	%	55.9	%	55.8	%	55.8	%

Systems Hardware GP$	729		1,197		827		1,193		3,947		739		992		668		1,137		3,536
Systems Hardware GP%	34.1	%	39.7	%	34.0	%	49.6	%	39.5	%	44.6	%	48.2	%	44.8	%	48.0	%	46.7	%

Operating Systems Software GP$	496		511		494		539		2,041		435		442		435		478		1,790
Operating Systems Software GP%	87.4	%	88.3	%	87.5	%	91.2	%	88.6	%	89.7	%	91.3	%	90.2	%	91.5	%	90.7	%