IBM 2001 Annual Report Download - page 94

Notes to Consolidated Financial Statements
INTERNATIONAL BUSINESS MACHINES CORPORATION
and Subsidiary Companies
92
Investments Liability Liability
To tal and Other Liability as of as of
Pre-Tax Asset Write- Created Other Dec. 31, Other Dec. 31,
(dollars in millions) Charges*Downs in 1999 Payments Adjustments** 1999 Payments Adjustments** 2000
Technology Group
MD Actions:
DRAM
Equipment(1) $««««662 $««««662 $«««— $«— $«— $«««— $«««— $«— $«««—
Employee terminations:(2) (8)
Current 30 — 30 151833442615
Non current 137 — 137 — (21) 116 — (30) 86
Dominion investment(3) 171 171 ———————
MiCRUS investment(4) 152 — 152 — — 152 152 — —
STD Actions:
Equipment(5) 337 337 ———————
Employee terminations(6) 23 — 23 16— 7 7——
NHD Action:
Inventory write-downs and
contract cancellations(7) 178 178 ———————
Total 1999 actions $«1,690 $«1,348 $«342 $«31 $««(3) $«308 $«203 $««(4) $«101
results of the company’s semiconductor business. They were
intended to enable the company to (1) reconfigure the assets
and capabilities of the division to allow more focus on the
faster-growth, higher-margin custom logic portion of the MD
business and (2) enhance its ability to more cost-effectively
manage a partnership agreement that was formed to produce
complementary metal oxide semiconductor (CMOS) based
logic components.
The company reduced its internal dynamic random
access memory (DRAM) capacity by converting its manufac-
turing facility in Essonnes, France, from DRAM to custom
logic. The company effected that conversion through a joint
venture with Infineon Technologies, which at the time was a
subsidiary of Siemens AG. Also related to DRAM, the com-
pany executed contracts with various banks and other
financing institutions to sell and lease back test equipment.
The company also participated in a 50/50 joint venture
(Dominion Semiconductor Company) with Toshiba Corpora-
tion to produce DRAM memory components. The company
entered into an agreement whereby Toshiba assumed the
company’s interest in Dominion effective December 1, 2000.
The company participated in the capacity output of
Dominion at a significantly reduced rate in the interim period.
The company held a majority interest in a joint venture
(MiCRUS) with Cirrus Logic Inc. (the partner) to produce
CMOS-based logic components for IBM and its partner based
on contractual capacity agreements. The partner indicated
that it would not require the output capacity that was pro-
vided for in the partnership agreement. The company
determined that the most cost-effective manner in which to
address the partner’s desire to exit the partnership agreement
was to acquire the minority interest held by that partner and
to cut back production. In the second quarter of 1999, the
company accrued related costs associated with the MiCRUS
operations. The liability created was primarily for lease
termination charges for equipment under the MiCRUS
operation. Since June 1999, related activities were under way
and were completed in June 2000. The liabilities accrued in
the second quarter of 1999 were utilized during the second
quarter of 2000. In June 2000, the company sold its MiCRUS
semiconductor operations to Philips Semiconductors, an
affiliate of Royal Philips Electronics.
The company also announced aggressive steps intended
to improve its competitive position in the markets that STD
serves by merging server hard disk drive (HDD) product
lines and realigning operations. The company integrated all
server HDDs into a single low-cost design platform that uses
common development and manufacturing processes. The
company transferred manufacturing assembly and test oper-
ations to Hungary and Mexico and completed these actions
by mid-2000.
The actions within NHD relate to a global alliance with
Cisco Systems, Inc. As a result of the announcement of the
alliance, demand for the router and switch products by both
existing and new customers deteriorated.
The following table identifies the significant components
of the pre-tax charge related to the 1999 actions and the
liability as of December 31, 2001 and 2000: