IBM 2001 Annual Report Download - page 95

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Notes to Consolidated Financial Statements
INTERNATIONAL BUSINESS MACHINES CORPORATION
and Subsidiary Companies
93
Liability as of Other Liability as of
(dollars in millions) Dec. 31, 2000 Payments Adjustments** Dec. 31, 2001
DRAM
Employee terminations:(2) (8)
Current $«««15 «$«14 $««12 «$«13
Non current 86 «— (12) «74
Total 1999 actions $«101 $«14 $««— $«87
*With the exception of NHD inventory write-downs, all charges were recorded in
SG&A 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 manu-
facturing 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
To shiba 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 difference 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 manu-
facturing and 120 indirect manufacturing) in the U.S. 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 2001 year-end and 2000 amounts are also disclosed in note l, “Other Liabilities,”
on pages 87 and 88.
rEarnings Per Share of Common Stock
The following table sets forth the computation of basic and diluted earnings per share of common stock.
FOR THE YEAR ENDED DECEMBER 31: 2001 2000 1999
Weighted-average number of shares on which earnings per share
calculations are based:
Basic 1,733,348,422 1,763,037,049 1,808,538,346
Add
—
incremental shares under stock compensation plans 36,595,476 46,750,030 59,344,849
Add
—
incremental shares associated with contingently issuable shares 1,277,222 2,331,343 3,190,717
Add
—
incremental shares associated with put options*9,479 ——
Assuming dilution 1,771,230,599 1,812,118,422 1,871,073,912
(dollars in millions except per share amounts)
Net income applicable to common stockholders (millions) $«7,713 $«8,073 $«7,692
Less
—
net income applicable to contingently issuable shares (millions) 421 (11)
Net income on which diluted earnings per share is calculated (millions) $«7,709 $«8,052 $«7,703
Earnings per share of common stock:
Assuming dilution $«««4.35 $«««4.44 $«««4.12
Basic $«««4.45 $«««4.58 $«««4.25
*Represents short-term put option contracts sold by the company on a limited basis through private placements with independent third parties to reduce the cost of the share buy-
back program. The put option contracts that were executed permitted net share settlement at the company’s option and did not result in a put option liability on the Consolidated
Statement of Financial Position. At December 31, 2001, the company did not have any put option obligations outstanding.
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 rec-
ognized 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 depreci-
ated over the remaining new useful life. The net effect on
future operations 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.