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MANAGEMENT DISCUSSION International Business Machines Corporation and Subsidiary Companies
62
largest networking outsourcing contract ever awarded. In
addition, AT&T and the Global Services unit have reached an
agreement for services valued at about $4 billion over the next
10 years. As part of the agreement, the company will manage
AT&T’s applications processing (including billing, service-
order processing, scheduling of installation and maintenance)
for customers of AT&T’s business long-distance services. In
addition, the company will assume management of AT&T data
processing centers, which operate corporate information sys-
tems such as accounts payable and receivable and employee
payroll and benefits.
In January 1998, the company acquired Software Artistry, Inc.,
a leading provider of both consolidated service desk and
customer relationship management solutions for distributed
enterprise environments. In March 1998, the company
acquired CommQuest Technologies, Inc., a company that
designs and markets advanced semiconductors for wireless
communications applications, such as cellular phones and
satellite communications.
On April 16, 1997, the company purchased a majority interest
in NetObjects, a leading provider of website development
tools for designers and intranet developers. In September
1997, the company acquired the 30 percent equity interest
held by Sears in Advantis, the U.S. network services arm of the
IBM Global Network. Advantis is now 100 percent owned by
the company. In December 1997, the company acquired
Eastman Kodak’s share of Technology Service Solutions (TSS),
which was formed in 1994 by the company and Eastman
Kodak. TSS is now a wholly owned subsidiary of the company,
offering comprehensive services solutions to its customers. In
December 1997, the company acquired Unison Software, Inc.,
a leading developer of workload management software.
On March 1, 1996, the company acquired all outstanding
shares of Tivoli for approximately $800 million ($716 million in
net cash). The company engaged a nationally recognized,
independent appraisal firm to express an opinion on the fair
market value of the assets of the acquisition to serve as a
basis for allocation of the purchase price to the various
classes of assets. The company recorded $280 million of
goodwill, $103 million of other assets and expensed $417 mil-
lion of purchased in-process research and development as a
result of the appraisal.
In 1996, the acquisition of Object Technology International,
Inc. for approximately $50 million resulted in a valuation of
purchased in-process research and development amounting
to $18 million, bringing the total amount of purchased in-
process research and development in 1996, included in
Research, development and engineering expense in the
Consolidated Statement of Earnings, to $435 million.
Employees
Percentage
Changes
1998 1997 1996 1998-97 1997-96
IBM /wholly
owned
subsidiaries 291,067 269,465 240,615 8.0 12.0
Less than
wholly owned
subsidiaries 21,704 20,751 28,033 4.6 (26.0)
Complementary 36,900 43,000 37,000 (14.2) 16.2
As of December 31, 1998, employees of the company and its
wholly owned subsidiaries increased 21,602 over 1997, of which
approximately 18,000 were in the Global Services segment.
Increases were also significant in the Tivoli organization, as well
as in the storage business, due to the addition of new manu-
facturing capacity in the company’s emerging markets.
The increase in employees in the less than wholly owned
subsidiaries over last year reflects continued growth in the
company’s Global Services segment, notably Australia and
India. Entities in emerging geographic markets such as China
increased as well. Partially offsetting the increase was a num-
ber of less than wholly owned subsidiaries that were divested
during the year or converted to a wholly owned status.
The company’s complementary workforce is an approximation
of equivalent full-time employees hired under temporary, part-
time and limited-term employment arrangements to meet spe-
cific business needs in a flexible and cost-effective manner.