IBM 2007 Annual Report Download - page 102

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100
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
Management Discussion ..................................14
Consolidated Statements ..................................58
Notes ........................................................... 64
A-F ...................................................................64
G-M ..................................................................84
N-S ............................................................. 94
N. Contingencies and Commitments ..............94
O. Taxes ............................................................97
P. Research, Development
and Engineering ..........................................99
Q. 2005 Actions .......................................... 99
R. Earnings Per Share of Common Stock .. 101
S. Rental Expense and
Lease Commitments ........................... 101
T-W ................................................................102
Charges incurred for the workforce reductions consisted of sever-
ance/termination benefits for approximately 16,000 employees
(14,500 of which were for the incremental second-quarter 2005
actions). All separations were substantially completed by March 31,
2006. The noncurrent portion of the liability associated with the
workforce reductions relates to terminated employees who were
granted annual payments to supplement their income in certain
countries. Depending on individual country legal requirements,
these required payments will continue until the former employee
begins receiving pension benefits or is deceased. Cash payments
made through December 31, 2007 associated with the workforce
reductions were $1,342 million.
The vacant space accruals are primarily for ongoing obligations
to pay rent for vacant space, offset by estimated sublease income,
over the respective lease term of the company’s lease agreements.
The length of these obligations varies by lease with the longest
extending through 2013.
In connection with the company’s restructuring activities initiated
in the second quarter of 2005, the company recorded pre-tax impair-
ment charges for certain real estate assets of approximately $95 million
during the year ended December 31, 2005. The principal component
of such impairment charges resulted from the sale of a facility in
Yasu-City, Japan, which closed during the third quarter of 2005. In
connection with this sale, the company recorded an impairment
charge to write the asset down to its fair value in the second quarter.
These restructuring activities had the following effect on the
company’s reportable segments.
($ in millions)
CUMULATIVE
TOTAL PRE-TAX PRE-TAX CHARGES
CHARGES EXPECTED RECORDED FOR 2ND-
TO BE INCURRED QTR. 2005 INITIATIVES*
Global Technology Services $ 722 $ 719
Global Business Services 444 444
Systems and Technology 132 132
Software 98 98
Global Financing 16 16
Total reportable segments 1,412 1,408
Unallocated corporate amounts 360 357
Total $1,771 $1,765
* Includes $13 million and $35 million for reversals of previously recorded charges for the
years ended December 31, 2007 and 2006, respectively, due to changes in the estimated
cost of employee terminations and vacant space. These adjustments were primarily
recorded in SG&A expense.
($ in millions)
LIABILITY LIABILITY LIABILITY
AS OF AS OF AS OF
DEC. 31, 2005 PAYMENTS OTHER* DEC. 31, 2006 PAYMENTS OTHER+ DEC. 31, 2007
Workforce reductions $454 $(264) $10 $199 $(65) $11 $145
Vacant space 83 (37) 1 47 (21) — 27
Total restructuring activity for
second-quarter 2005 actions $537 $(302) $11 $247** $(86) $11 $171++
* Consists of foreign currency translation adjustments ($37 million), net balance sheet reclassifications ($2 million), accretion expense ($7 million) and reversals of previous recorded
liabilities ($35 million) for changes in the estimated cost of employee terminations and vacant space. These reversals, net of accretion expense, were primarily recorded in SG&A expense.
** $92 million recorded as a current liability in Accounts payable and accruals and $155 million as a noncurrent liability in Other liabilities in the Consolidated Statement of Financial Position.
+ Consists of foreign currency translation adjustments ($20 million) and accretion expense ($6 million), partially offset by adjustments to previously recorded liabilities ($13 million)
for changes in the estimated cost of employee terminations and vacant space and net balance sheet reclassification of $2 million. The adjustments and accretion expense were primarily
recorded in SG&A expense.
++ $73 million recorded as a current liability in Accounts payable and accruals and $98 million as a noncurrent liability in Other liabilities in the Consolidated Statement of Financial Position.