IBM 2007 Annual Report Download - page 101

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Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
Total pre-tax restructuring activity was as follows:
($ in millions)
PRE-TAX CHARGES LIABILITY LIABILITY
RECORDED IN ASSET RECORDED IN AS OF
SECOND-QTR. 2005 IMPAIRMENTS SECOND-QTR. 2005 PAYMENTS OTHER** DEC. 31, 2005
Workforce reductions $1,574 $ — $1,574 $(1,013) $(107) $454
Vacant space 141 — 141 (53) (5) 83
Asset impairments 95 95 — — — —
Total restructuring activity for
second-quarter 2005 actions $1,810* $95 $1,715 $(1,066) $(112) $537+
* $1,574 million recorded in SG&A expense and $236 million recorded in Other (income) and expense in the Consolidated Statement of Earnings.
** Consists of foreign currency translation adjustments ($38 million), net balance sheet reclassifications ($41 million) and reversals of previously recorded liabilities ($34 million) for changes
in the estimated cost of employee terminations and vacant space, offset by approximately $1 million of accretion expense. The reversals were recorded primarily in SG&A expense.
+ $391 million recorded as a current liability in Accounts payable and accruals and $146 million as a noncurrent liability in Other liabilities in the Consolidated Statement of Financial Position.
The company has not provided deferred taxes on $18.8 billion of
undistributed earnings of non-U.S. subsidiaries at December 31,
2007, as it is the company’s policy to indefinitely reinvest these earn-
ings in non-U.S. operations. However, the company periodically
repatriates a portion of these earnings to the extent that it does not
incur an additional U.S. tax liability. Quantification of the deferred
tax liability, if any, associated with indefinitely reinvested earnings is
not practicable.
For additional information on the company’s effective tax rate, as
well as the cash tax rate, refer to the “Looking Forward” section of
the Management Discussion on page 43.
Note P. Research, Development
and Engineering
RD&E expense was $6,153 million in 2007, $6,107 million in 2006
and $5,842 million in 2005.
The company incurred expense of $5,754 million in 2007, $5,682
million in 2006 and $5,379 million in 2005 for scientific research and
the application of scientific advances to the development of new and
improved products and their uses, as well as services and their appli-
cation. Within these amounts, software-related expense was $3,037
million, $2,842 million and $2,689 million in 2007, 2006 and 2005,
respectively. In addition, included in the expense was a charge of $7
million and $1 million in 2006 and 2005, respectively, for acquired
in-process R&D.
Expense for product-related engineering was $399 million, $425
million and $463 million in 2007, 2006 and 2005, respectively.
Note Q. 2005 Actions
In May 2005, management announced its plans to implement a series
of restructuring actions designed to improve the company’s efficien-
cies, strengthen its client-facing operations and capture opportunities
in high-growth markets. The company’s actions primarily included
voluntary and involuntary workforce reductions, with the majority
impacting the Global Services segments, primarily in Europe, as
well as costs incurred in connection with the vacating of leased
facilities. These actions were in addition to the company’s ongoing
workforce reduction and rebalancing activities that occur each quar-
ter. The total charges expected to be incurred in connection with all
second-quarter 2005 initiatives is approximately $1,771 million
($1,765 million of which has been recorded cumulatively through
December 31, 2007). Approximately $1,631 million of the total
charges require cash payments, of which approximately $1,453 mil-
lion have been made as of December 31, 2007 and $73 million are
expected to be made over the next 12 months.