IBM 2000 Annual Report Download - page 84

page no.
eighty-two
notes to consolidated financial statements
international business machines corporation
and Subsidiary Companies
The following table identifies the significant components of the pre-tax charge related to the 1999 actions and the liability as
of December 31, 2000 and 1999:
Investments Liability Liability
Total and Other Liability as of as of
Pre-Tax Asset Created Other December 31, Other December 31,
(dollars in millions) Charges*Write-Downs in 1999 Payments Adjustments** 1999 Payments Adjustments** 2000
Technology Group
MD Actions:
DRAM
Equipment (1) $««««662 $««««662 $«««— $«— $«— $«««— $«««— $«— $«««—
Employee terminations: (2) (8)
Current 30 —30151833442615
Non-current 137 — 137 — (21) 116 — (30) 86
Dominion investment (3) 171171———————
MiCRUS investment (4)(8) 152 — 152 — — 152 152 — —
STD Actions:
Equipment (5) 337337———————
Employee terminations (6) (8) 23 —2316— 7 7——
NHD Action:
Inventory write-downs and
contract cancellations (7) 178178———————
Total 1999 actions $«1,690 $«1,348 $«342 $«31 $««(3) $«308 $«203 $««(4) $«101
*With the exception of NHD inventory write-downs, all charges were recorded in
Selling, general and administrative expense. NHD inventory write-downs were
recorded in Hardware cost.
** Principally represents reclassification of non-current to current and translation
adjustments.
(1) Represents (a) the difference between net book value and fair value of assets that
were contributed to a joint venture, (b) the book value of assets that were removed
from service as a result of the MD actions and were scrapped during the second
quarter of 1999 and (c) the difference between the net book value and the
appraised fair value of test equipment that is subject to sale-leaseback agreements
and that is being used and appropriately expensed.
(2) Workforce reductions that affected approximately 790 employees (455 direct man-
ufacturing and 335 indirect manufacturing) in France. The workforce reductions
were completed by the end of the first quarter of 2000.
(3) Write-off of investment in joint venture at the signing of the agreement with
Toshiba Corporation.
(4) Acquisition of minority interest in MiCRUS and charges for equipment leasehold
cancellation liabilities and lease rental payments for idle equipment. The MiCRUS
semiconductor operation was sold to Philips Semiconductors during June 2000.
(5) Represents (a) the book value of assets that were removed from service as a result
of the STD actions and were scrapped during the second and third quarters of 1999,
(b) write-downs to fair value of equipment under contract for sale and delivery by
December 1, 1999 ($29 million), and March 31, 2000 ($5 million), and (c) the differ-
ence between the net book value and the appraised fair value of equipment that is
subject to sale-leaseback agreements and that is being used and appropriately expensed.
(6) Workforce reductions that affected approximately 900 employees (780 direct
manufacturing and 120 indirect manufacturing) in the United States. The
workforce reductions were completed by the end of the first quarter of 2000.
(7) Write-down to net realizable value of inventory of router and switch products
($144 million) and contract cancellation fees ($34 million) related to deterioration
in demand for router and switch products.
(8) The 1999 year-end and 2000 amounts are also disclosed in note L, “Other
Liabilities,” on page 78.
Change in Estimate
As a result of a change in the estimated useful life of personal
computers from five years to three years, the company recog-
nized a charge in the second quarter of 1999 of $404 million
($241 million after tax, $.13 per diluted common share). In
the second quarter of 1999, the company wrote off the net
book value of personal computers that were three years old
or older and, therefore, had no remaining useful life. The
remaining book value of the assets will be depreciated over
the remaining new useful life. The net effect on future opera-
tions is expected to be minimal as the increased depreciation
due to the shorter life will be offset by the lower depreciable
base attributable to the write-off of personal computers
older than three years.
RRESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering expense was $5,151
million in 2000, $5,273 million in 1999 and $5,046 million
in 1998.
The company had expenses of $4,345 million in 2000,
$4,575 million in 1999 and $4,466 million in 1998 for basic
scientific research and the application of scientific advances to
the development of new and improved products and their uses.
Of these amounts, software-related expenses were $1,948 mil-
lion, $2,036 million and $2,086 million in 2000, 1999 and 1998,
respectively. Included in the expense for 2000, 1999 and 1998
are charges for acquired in-process research and development
of $9 million, $111 million and $111 million, respectively. See
note D, “Acquisitions/Divestitures” on pages 72 through 74
for further information about that expense.
Expenses for product-related engineering were $806
million, $698 million and $580 million in 2000, 1999 and
1998, respectively.