IBM 2005 Annual Report Download - page 82
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NotestoConsolidatedFinancialStatements
INTERNATIONALBUSINESSMACHINESCORPORATION ANDSUBSIDIARYCOMPANIES
_81
Totalpre-taxrestructuringactivity wasasfollows:
(Dollarsinmillions)
PRE-TAX
CHARGES LIABILITY LIABILITY
RECORDED ASSET RECORDEDIN ASOF
INSECOND IMPAIR- THESECOND DEC. 31,
QTR. 2005 MENTS QTR. 2005 PAYMENTS OTHER** 2005
Workforcereductions $«1,574 $«— $«1,574 $«(1,013) $«(107) $«454
Vacantspace 141 — 141 (53) «(5) 83
Assetimpairments 95 95 — — — —
Totalrestructuringchargesfor
secondquarter2005actions $«1,810* $«95 $«1,715 $«(1,066) $«(112) $«537+
* $1.6billionrecordedin SG&A expense and$0.2billionrecordedinOther(income)andexpenseintheConsolidatedStatementofEarnings.
** Consistsofforeigncurrencytranslationadjustments($38million),netreclassificationstootherbalancesheetcategories($41 million)andreversalsofpreviouslyrecorded
liabilities($34million),offsetbyapproximately$1 millionofaccretionexpense.Thereversals wererecordedprimarilyinSG&A expense,forchangesintheestimatedcostof
employeeterminationsandvacantspace.
+ $391 millionrecordedasacurrentliabilityinAccountspayableandaccrualsand$146 millionasanon-currentliabilityinOtherliabilitiesintheConsolidatedStatementof
FinancialPosition.
Charges incurred for the workforce reductions consist of sever-
ance/termination benefits for approximately 16,000 employees
(14,500 of which were for the incremental second-quarter 2005
actions). AsofDecember31,2005approximately15,600separa-
tionshavebeencompleted.Thenon-currentportionoftheliability
associated with the workforce reductions relates to terminated
employees who were granted annual payments to supplement
theirincomeincertaincountries.Dependingonindividualcoun-
trylegalrequirements,theserequiredpaymentswillcontinueuntil
the former employee begins receiving pension benefits or is
deceased. Cash payments made through December 31, 2005
associatedwiththeworkforcereductionswere$1,013million.
Thevacantspaceaccrualsareprimarilyforongoingobliga-
tionstopayrentforvacantspace,offsetbyestimatedsublease
income,overtherespectiveleasetermofthecompany’slease
agreements.Thelengthoftheseobligationsvariesbyleasewith
thelongestextendingthrough2019.
In connection with the company’s restructuring activities
initiatedinthesecondquarterof2005,thecompanyrecorded
pre-tax impairment charges for certain real estate assets of
approximately $95million duringtheyearendedDecember31,
2005. The principal component of such impairment charges
resulted from the sale of a facility in Yasu-City, Japan, which
closedduringthethirdquarter of 2005.Inconnectionwiththis
sale,thecompanyrecordedanimpairmentchargetowritethe
assetdowntoitsfairvalueinthesecondquarter.
Theserestructuringactivitieshadthefollowingeffectonthe
company’sreportablesegments:
(Dollarsinmillions)
TOTALPRE-TAX CUMULATIVE
CHARGES PRE-TAXCHARGES
EXPECTED RECORDED FOR
TOBE 2NDQTR. 2005
ATDECEMBER31: INCURRED INITIATIVES *
GlobalServices $«1,191 $«1,177
SystemsandTechnologyGroup 136 133
Software 93 92
GlobalFinancing 16 16
EnterpriseInvestments 66
Totalreportablesegments «1,442 «1,424
Unallocatedcorporateamounts ««««357 ««««352
Total $«1,799 $«1,776
* Includes$25millionand$34millionforreversalsofpreviouslyrecorded charges
inthefourthquarterof2005andfortheyearendedDecember31,2005,respec-
tively, duetochangesintheestimatedcostofemployeeterminationsandvacant
space.SuchadjustmentswerepredominantlyrecordedinSG&A expense inthe
ConsolidatedStatementofEarnings