IBM 2002 Annual Report Download - page 94

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Notes to Consolidated Financial Statements
92 international business machines corporation and Subsidiary Companies
the fourth quarter of 2002. The company entered into a
limited supply agreement with EIT for future products,
and it will also lease back, at fair market value rental
rates, approximately one-third of the Endicott campus’
square footage for operations outside the interconnect
OEM business.
(g) As part of the strategic realignment of the company’s
Microelectronics business, the company reached an
agreement to sell certain assets and liabilities comprising
its Mylex business to LSI Logic Corporation and the
company sold part of its wireless phone chipset opera-
tions to TriQuint Semiconductor, Inc. in June 2002. The
Mylex transaction was completed in August 2002. The
loss of $74 million for the Mylex transaction and the real-
ized gain of $11 million for the chipset sale were recorded
in Other (income) and expense in the Consolidated
Statement of Earnings.
(h) The majority of the workforce reductions relate to the
company’s Global Services business. The workforce reduc-
tions represent 14,213 people of which approximately
94 percent left the company as of December 31, 2002. See
(d) on page 91 for information on the non-current portion
of the liability. These charges were included in SG&A
expense in the Consolidated Statement of Earnings.
(i) The space accruals are for ongoing obligations to pay rent
for vacant space that could not be sublet or space that was
sublet at rates lower than the committed lease arrange-
ments. This space relates primarily to workforce dynamics
in the Global Services business and the downturn in cor-
porate technology spending on services. The length of
these obligations varies by lease with the longest extending
through 2009. These charges were recorded in Other
(income) and expense in the Consolidated Statement
of Earnings.
(a) The majority of the workforce reductions relate to the
company’s Global Services business. The workforce reduc-
tions represent 3,541 people who are expected to leave the
company by the end of the first quarter of 2003 ($305 mil-
lion in the table above). These charges were included in
SG&A expense in the Consolidated Statement of Earnings.
The workforce reductions also affected 1,203 acquired
PwCC employees who are expected to leave the company
by the end of the first quarter of 2003 ($48 million in the
table above). These costs were included as part of the lia-
bilities assumed for purchase accounting.
The non-current workforce accrual relates to termi-
nated employees in certain countries outside the United
States, for whom the company is required to make annual
payments to supplement their incomes. Depending on
individual country legal requirements, these required
payments will continue until the former employee begins
receiving pension benefits or dies.
(b) The majority of the space accruals are for ongoing obliga-
tions to pay rent for vacant space of PwCC that could not
be sublet or space that was sublet at rates lower than the
committed lease arrangements. The length of these obli-
gations varies by lease with the longest extending through
2019. The charges related to IBM space ($17 million)
were included in Other (income) and expense in the
Consolidated Statement of Earnings. The costs related to
acquired PwCC space were included as part of the liabili-
ties assumed for purchase accounting ($235 million in the
table above comprise $62 million current and $173 mil-
lion non-current).
Fourth Quarter Actions
During the fourth quarter of 2002, the company executed several actions related to the company’s acquisition of PwCC.
Specifically, the company rebalanced both its workforce and its leased space resources. The following table summarizes the
significant components of these actions:
recorded in
purchase
recorded in the consolidated accounting
statement of earnings (see note c)total
total sale or liability liability liability liability
pre-tax write-off recorded recorded recorded other as of
(dollars in millions) charges of assets in 4th qtr. in 4th qtr. in 4th qtr. payments adjustments*dec. 31, 2002
Workforce: $«305(a) $«—
Current $«248 $«««48(a) $«296 $«16 $«(2) $«278
Non-current 57(a) —57——57
Vacant space: «17(b) «4
Current 662
(b) 68 1 — 67
Non-current 7173(b) 180 — — 180
Total $«322 $«««4 $«318 $«283 $«601 $«17 $«(2) $«582
*Principally represents currency translation adjustments.