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International Business Machines 10-Q 2008

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10 - Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTER ENDED SEPTEMBER 30, 2008

 

1-2360

(Commission file number)

 

INTERNATIONAL BUSINESS MACHINES CORPORATION

(Exact name of registrant as specified in its charter)

 

New York

 

13-0871985

(State of incorporation)

 

(IRS employer identification number)

 

 

 

Armonk, New York

 

10504

(Address of principal executive offices)

 

(Zip Code)

 

914-499-1900

(Registrant’s telephone number)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section l3 or l5(d) of the Securities Exchange Act of 1934 during the preceding l2 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x   No  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer x

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o  No  x

 

The registrant has 1,343,457,986 shares of common stock outstanding at September 30, 2008.

 

 

 



Table of Contents

 

Index

 

 

 

Page

Part I - Financial Information:

 

 

 

 

 

Item 1. Consolidated Financial Statements:

 

 

 

 

 

Consolidated Statement of Earnings for the three and nine months ended September 30, 2008 and 2007

 

3

 

 

 

Consolidated Statement of Financial Position at September 30, 2008 and December 31, 2007

 

5

 

 

 

Consolidated Statement of Cash Flows for the nine months ended September 30, 2008 and 2007

 

7

 

 

 

Notes to Consolidated Financial Statements

 

8

 

 

 

Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition

 

24

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

57

 

 

 

Item 4. Controls and Procedures

 

58

 

 

 

Part II - Other Information:

 

58

 

 

 

Item 1. Legal Proceedings

 

58

 

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Repurchases of Equity Securities

 

58

 

 

 

Item 5. Other Information

 

58

 

 

 

Item 6. (a) Exhibits

 

59

 

2



Table of Contents

 

Part I - Financial Information

 

Item 1. Consolidated Financial Statements:

 

INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2008

 

2007

 

2008

 

2007

 

Revenue:

 

 

 

 

 

 

 

 

 

Services

 

$

14,773

 

$

13,657

 

$

44,550

 

$

39,152

 

Sales

 

9,892

 

9,833

 

30,156

 

28,916

 

Financing

 

636

 

629

 

1,918

 

1,852

 

Total revenue

 

25,302

 

24,119

 

76,623

 

69,920

 

 

 

 

 

 

 

 

 

 

 

Cost:

 

 

 

 

 

 

 

 

 

Services

 

10,230

 

9,855

 

31,287

 

28,356

 

Sales

 

3,789

 

3,960

 

11,687

 

11,827

 

Financing

 

324

 

348

 

924

 

977

 

Total cost

 

14,342

 

14,163

 

43,898

 

41,160

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

10,959

 

9,956

 

32,725

 

28,760

 

 

 

 

 

 

 

 

 

 

 

Expense and other income:

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

5,644

 

5,324

 

17,553

 

16,044

 

Research, development and engineering

 

1,579

 

1,524

 

4,809

 

4,568

 

Intellectual property and custom development income

 

(267

)

(270

)

(825

)

(721

)

Other (income) and expense

 

(51

)

(95

)

(201

)

(528

)

Interest expense

 

159

 

193

 

482

 

396

 

Total expense and other income

 

7,064

 

6,676

 

21,818

 

19,759

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations before income taxes

 

3,895

 

3,280

 

10,907

 

9,001

 

Provision for income taxes

 

1,071

 

918

 

2,999

 

2,534

 

Income from continuing operations

 

2,824

 

2,362

 

7,907

 

6,467

 

 

(Amounts may not add due to rounding.)

 

(The accompanying notes are an integral part of the financial statements.)

 

3



Table of Contents

 

INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF EARNINGS – (continued)
(UNAUDITED)

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

(Dollars in millions except per share amounts)

 

2008

 

2007

 

2008

 

2007

 

Discontinued operations

 

 

 

 

 

 

 

 

 

Loss from discontinued operations, net of tax

 

 

(1

)

 

(1

)

Net income

 

$

2,824

 

$

2,361

 

$

7,907

 

$

6,466

 

 

 

 

 

 

 

 

 

 

 

Earnings/(loss) per share of common stock:

 

 

 

 

 

 

 

 

 

Assuming dilution:

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

2.05

 

$

1.68

 

$

5.68

 

$

4.42

 

Discontinued operations

 

 

(0.00

)

 

(0.00

)

Total

 

$

2.05

 

$

1.68

 

$

5.68

 

$

4.42

 

 

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

2.09

 

$

1.72

 

$

5.79

 

$

4.50

 

Discontinued operations

 

 

(0.00

)

 

(0.00

)

Total

 

$

2.09

 

$

1.72

 

$

5.79

 

$

4.50

 

 

 

 

 

 

 

 

 

 

 

Weighted-average number of common shares outstanding: (millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assuming dilution

 

1,379.1

 

1,405.8

 

1,393.1

 

1,463.1

 

 

 

 

 

 

 

 

 

 

 

Basic

 

1,350.7

 

1,371.4

 

1,366.7

 

1,436.0

 

 

 

 

 

 

 

 

 

 

 

Cash dividends per common share

 

$

0.50

 

$

0.40

 

$

1.40

 

$

1.10

 

 

(Amounts may not add due to rounding.)

 

(The accompanying notes are an integral part of the financial statements.)

 

4



Table of Contents

 

INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(UNAUDITED)

ASSETS

 

(Dollars in millions)

 

At September 30,
2008

 

At December 31,
2007

 

Assets:

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

9,755

 

$

14,991

 

Marketable securities

 

1

 

1,155

 

Notes and accounts receivable – trade (net of allowances of $225 in 2008 and $241 in 2007)

 

9,964

 

11,428

 

Short-term financing receivables (net of allowances of $305 in 2008 and $296 in 2007)

 

13,912

 

16,289

 

Other accounts receivable (net of allowances of $52 in 2008 and $13 in 2007)

 

1,063

 

1,072

 

Inventories, at lower of average cost or market:

 

 

 

 

 

Finished goods

 

677

 

668

 

Work in process and raw materials

 

2,323

 

1,996

 

Total inventories

 

3,000

 

2,664

 

Deferred taxes

 

1,778

 

1,687

 

Prepaid expenses and other current assets

 

4,714

 

3,891

 

Total current assets

 

44,187

 

53,177

 

 

 

 

 

 

 

Plant, rental machines and other property

 

39,012

 

38,584

 

Less: Accumulated depreciation

 

24,353

 

23,503

 

Plant, rental machines and other property — net

 

14,659

 

15,081

 

Long-term financing receivables (net of allowances of $136 in 2008 and $58 in 2007)

 

10,855

 

11,603

 

Prepaid pension assets

 

18,773

 

17,417

 

Intangible assets — net

 

3,048

 

2,107

 

Goodwill

 

18,861

 

14,285

 

Investments and sundry assets

 

5,526

 

6,761

 

Total assets

 

$

115,910

 

$

120,431

 

 

(Amounts may not add due to rounding.)

 

(The accompanying notes are an integral part of the financial statements.)

 

5



Table of Contents

 

INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(UNAUDITED)

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

At September 30,

 

At December 31,

 

(Dollars in millions except per share amounts)

 

2008

 

2007

 

Liabilities and Stockholders’ Equity:

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Taxes

 

$

2,497

 

$

3,673

 

Short-term debt

 

16,181

 

12,235

 

Accounts payable

 

6,770

 

8,054

 

Compensation and benefits

 

4,426

 

4,645

 

Deferred income

 

9,555

 

9,802

 

Other accrued expenses and liabilities

 

5,324

 

5,901

 

Total current liabilities

 

44,752

 

44,310

 

 

 

 

 

 

 

Long-term debt

 

18,232

 

23,039

 

Retirement and nonpension postretirement benefit obligations

 

13,582

 

13,582

 

Deferred income

 

2,881

 

3,060

 

Other liabilities

 

8,944

 

7,970

 

Total liabilities

 

88,391

 

91,962

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

 

 

 

Common stock - par value $0.20 per share and additional paid-in capital

 

38,874

 

35,188

 

Shares authorized: 4,687,500,000

 

 

 

 

 

Shares issued: 2008 – 2,095,054,797
2007 – 2,057,607,421

 

 

 

 

 

Retained earnings

 

66,600

 

60,640

 

 

 

 

 

 

 

Treasury stock - at cost

 

(73,571

)

(63,945

)

Shares: 2008 – 751,596,811
2007 – 672,373,283

 

 

 

 

 

 

 

 

 

 

 

Accumulated gains and (losses) not affecting retained earnings

 

(4,384

)

(3,414

)

 

 

 

 

 

 

Total stockholders’ equity

 

27,519

 

28,470

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

115,910

 

$

120,431

 

 

(Amounts may not add due to rounding.)

 

(The accompanying notes are an integral part of the financial statements.)

 

6



Table of Contents

 

INTERNATIONAL BUSINESS MACHINES CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)

 

(Dollars in millions)

 

2008

 

2007

 

Cash flow from operating activities from continuing operations:

 

 

 

 

 

Net Income

 

$

7,907

 

$

6,467

 

Loss from discontinued operations

 

 

(1

)

Adjustments to reconcile income from continuing operations to cash provided from operating activities:

 

 

 

 

 

Depreciation

 

3,144

 

2,989

 

Amortization of intangibles

 

985

 

875

 

Stock-based compensation

 

501

 

539

 

Net gain on asset sales and other

 

(353

)

(302

)

Changes in operating assets and liabilities, net of acquisitions/divestitures

 

7

 

376

 

 

 

 

 

 

 

Net cash provided by operating activities from continuing operations

 

12,191

 

10,943

 

 

 

 

 

 

 

Cash flow from investing activities from continuing operations:

 

 

 

 

 

Payments for plant, rental machines and other property, net of proceeds from dispositions

 

(2,951

)

(2,870

)

Investment in software

 

(555

)

(669

)

Acquisition of businesses, net of cash acquired

 

(6,017

)

(718

)

Divestiture of businesses, net of cash transferred

 

71

 

310

 

Non-operating finance receivables — net (1)

 

203

 

298

 

Purchases of marketable securities and other investments (1)

 

(4,260

)

(19,795

)

Proceeds from sale of marketable securities and other investments (1)

 

5,103

 

17,672

 

 

 

 

 

 

 

Net cash used in investing activities from continuing operations

 

(8,405

)

(5,773

)

 

 

 

 

 

 

Cash flow from financing activities from continuing operations:

 

 

 

 

 

Proceeds from new debt (2)

 

8,251

 

19,813

 

Payments to settle debt (2)

 

(7,597

)

(7,786

)

Short-term (repayments)/borrowings less than 90 days — net

 

(1,523

)

371

 

Common stock repurchases

 

(9,838

)

(18,357

)

Common stock transactions — other

 

3,658

 

3,433

 

Cash dividends paid

 

(1,916

)

(1,593

)

 

 

 

 

 

 

Net cash used in financing activities from continuing operations

 

(8,964

)

(4,119

)

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

(58

)

230

 

Net cash used in discontinued operations - operating activities

 

 

(9

)

Net change in cash and cash equivalents

 

(5,236

)

1,273

 

 

 

 

 

 

 

Cash and cash equivalents at January 1

 

14,991

 

8,022

 

 

 

 

 

 

 

Cash and cash equivalents at September 30

 

$

9,755

 

$

9,295

 

 


(1) Non-operating finance receivables — net represents net cash flows from short-term commercial financing arrangements (terms generally 30 to 90 days) with dealers and remarketers of predominantly non-IBM products. Amounts previously presented gross within Purchases/Proceeds of marketable securities and other investments.

 

(2) Reclassified from September 30, 2007 presentation. See “Consolidated Statement of Cash Flows” on page 64 of the 2007 IBM Annual Report for additional information.

 

(Amounts may not add due to rounding.)

 

(The accompanying notes are an integral part of the financial statements.)

 

7



Table of Contents

 

Notes to Consolidated Financial Statements:

 

1. Basis of Presentation:  The accompanying consolidated financial statements and footnotes thereto are unaudited.  In the opinion of the management of the International Business Machines Corporation (the company), these statements include all adjustments, which are of a normal recurring nature, necessary to present a fair statement of the company’s results of operations, financial position and cash flows.

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the amounts of assets, liabilities, revenue, costs, expenses and gains and losses not affecting retained earnings that are reported in the Consolidated Financial Statements and accompanying disclosures.  Actual results may be different. See the company’s 2007 Annual Report for a discussion of the company’s critical accounting estimates.

 

Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with the company’s 2007 Annual Report.

 

Within the financial tables in this Form 10-Q, certain columns and rows may not add due to the use of rounded numbers for disclosure purposes. Percentages presented are calculated from the underlying whole-dollar amounts.

 

2. Accounting Changes:  In June 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) Emerging Issues Task Force 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities,” which will become effective in 2009 via retrospective application. Under the FSP, unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and, therefore, are included in computing earnings per share (EPS) pursuant to the two-class method. The two-class method determines earnings per share for each class of common stock and participating securities according to dividends or dividend equivalents and their respective participation rights in undistributed earnings. Restricted Stock Units (RSUs) granted to employees prior to December 31, 2007 are considered participating securities as they receive non-forfeitable dividend equivalents at the same rate as common stock. RSUs granted after December 31, 2007 do not receive dividend equivalents and are not considered participating securities. The company will adopt the FSP in fiscal year 2009. Upon implementation, the company does not expect a material impact on diluted and basic EPS. The implementation of the FSP is expected to decrease diluted EPS by $0.01 for the third-quarter 2008 and by $0.03 for the nine months ended September 30, 2008. Basic EPS is expected to decrease by $0.01 for the third-quarter 2008 and by $0.04 for the nine months ended September 30, 2008.

 

In March 2008, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 161, “Disclosures about Derivative Instruments and Hedging Activities-an amendment of FASB Statement No. 133.” SFAS No. 161 expands the current disclosure requirements of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” such that entities must now provide enhanced disclosures on a quarterly basis regarding how and why the entity uses derivatives; how derivatives and related hedged items are accounted for under SFAS No. 133 and how derivatives and related hedged items affect the entity’s financial position, financial results and cash flow. Pursuant to the transition provisions of the Statement, the company will adopt SFAS No. 161 in fiscal year 2009 and will present the required disclosures in the prescribed format on a prospective basis. This Statement will not impact the consolidated financial results as it is disclosure-only in nature.

 

In February 2008, the FASB issued FSP Financial Accounting Standard (FAS) 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13,” and FSP FAS 157-2, “Effective Date of FASB Statement No. 157.” FSP FAS 157-1 removes leasing from the scope of SFAS No. 157, “Fair Value Measurements.” FSP FAS 157-2 delays the effective date of SFAS No. 157 from 2008 to 2009 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).  In October 2008, the FASB issued FSP FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active”. FSP FAS 157-3 clarifies the application of SFAS 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. FSP FAS 157-3 became effective immediately upon issuance, and its adoption did not have an effect on the Consolidated Financial Statements. See Note 6 on pages 13 and 14 for additional information regarding SFAS No. 157.

 

8



Table of Contents

 

Notes to Consolidated Financial Statements – (continued)

 

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” which will become effective in 2009 via prospective application to business combinations. This Statement requires that the acquisition method of accounting be applied to a broader set of business combinations, amends the definition of a business combination, provides a definition of a business, requires an acquirer to recognize an acquired business at its fair value at the acquisition date and requires the assets and liabilities assumed in a business combination to be measured and recognized at their fair values as of the acquisition date (with limited exceptions). The company will adopt this Statement in fiscal year 2009 and its effects on future periods will depend on the nature and significance of business combinations subject to this statement.

 

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51.” This Statement requires that the noncontrolling interest in the equity of a subsidiary be accounted for and reported as equity, provides revised guidance on the treatment of net income and losses attributable to the noncontrolling interest and changes in ownership interests in a subsidiary and requires additional disclosures that identify and distinguish between the interests of the controlling and noncontrolling owners. Pursuant to the transition provisions of SFAS No. 160, the company will adopt the Statement in fiscal year 2009 via retrospective application of the presentation and disclosure requirements. The company does not expect the adoption of this Statement to have a material effect on the Consolidated Financial Statements.

 

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities, Including an amendment of FASB Statement No. 115,” which became effective January 1, 2008. SFAS No. 159 permits entities to measure eligible financial assets, financial liabilities and firm commitments at fair value, on an instrument-by-instrument basis, that are otherwise not permitted to be accounted for at fair value under other generally accepted accounting principles. The fair value measurement election is irrevocable and subsequent changes in fair value must be recorded in earnings. The company adopted this Statement as of January 1, 2008 but has not applied the fair value option to any eligible assets or liabilities. Thus, the adoption of this Statement did not affect the Consolidated Financial Statements.

 

In September 2006, the FASB finalized SFAS No. 157 which became effective January 1, 2008 except as amended by FSP FAS 157-1, FSP FAS 157-2 and FSP FAS 157-3 as previously described. This Statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements; however, it does not require any new fair value measurements. The provisions of SFAS No. 157 were applied prospectively to fair value measurements and disclosures for financial assets and financial liabilities and nonfinancial assets and nonfinancial liabilities recognized or disclosed at fair value in the financial statements on at least an annual basis beginning in the first quarter of 2008. The adoption of this Statement did not have a material effect on the Consolidated Financial Statements for fair value measurements made during the nine months ended September 30, 2008. While the adoption of this Statement did not have a material impact on its Consolidated Financial Statements, the company continues to monitor any additional implementation guidance that is issued that addresses the fair value measurements for certain financial assets, such as private market pension plan assets, and nonfinancial assets and nonfinancial liabilities not disclosed at fair value in the financial statements on at least an annual basis. See Note 6 on pages 13 and 14 for additional information regarding the adoption of this Statement.

 

9



Table of Contents

 

Notes to Consolidated Financial Statements – (continued)

 

3. Stockholders’ Equity: The following table summarizes Net income plus gains and (losses) not affecting retained earnings (net of tax), a component of Stockholders’ equity in the Consolidated Statement of Financial Position:

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2008

 

2007

 

2008

 

2007

 

Net income

 

$

2,824

 

$

2,361

 

$

7,907

 

$

6,466

 

Gains and (losses) not affecting retained earnings (net of tax):

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

(2,000

)

325

 

(1,543

)

675

 

Prior service costs, net gains/(losses) and transition assets/(obligations)

 

128

 

252

 

404

 

722

 

Net unrealized (losses)/gains on marketable securities (1)

 

(102

)

84

 

(278

)

131

 

Net unrealized gains/(losses) on cash flow hedge derivatives

 

596

 

(178

)

447

 

(140

)

Total net (losses) and gains not affecting retained earnings

 

(1,378

)

484

 

(970

)

1,388

 

Net income plus gains and (losses) not affecting retained earnings

 

$

1,446

 

$

2,845

 

$

6,938

 

$

7,853

 

 


(1) Sale of Lenovo stock and mark-to-market adjustments of remaining Lenovo stock accounted for a loss of $98 million and a $87 million gain for third quarter of 2008 and 2007, and a loss of $267 million and a gain of $139 million in the first nine months of 2008 and 2007, respectively.

 

4. Stock-Based Compensation: Stock-based compensation cost is measured at grant date, based on the fair value of the award, and is recognized over the employee requisite service period.  The following table presents total stock-based compensation cost included in the Consolidated Statement of Earnings:

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2008

 

2007

 

2008

 

2007

 

Cost

 

$

29

 

$

41

 

$

88

 

$

131

 

Selling, general and administrative

 

116

 

122

 

368

 

357

 

Research, development and engineering

 

15

 

15

 

44

 

52

 

Other (income) and expense

 

 

 

 

(1

)

Pre-tax stock-based compensation cost

 

160

 

177

 

501

 

539

 

Income tax benefits

 

(58

)

(45

)

(168

)

(188

)

Total stock-based compensation cost

 

$

103

 

$

132

 

$

333

 

$

351

 

 

The reduction in pre-tax stock-based compensation cost for the three months ended September 30, 2008, as compared to the corresponding period in the prior year, was principally the result of a reduction in the level of stock option grants ($41 million), partially offset by an increase related to restricted and performance-based stock units ($21 million).  The reduction in pre-tax stock-based compensation cost for the nine months ended September 30, 2008, as compared to the corresponding period in the prior year, was principally the result of a reduction in the level of stock option grants ($160 million), partially offset by an increase related to restricted and performance-based stock units ($114 million). The effects on pre-tax stock-based compensation cost related to the formation of a joint venture based on the company’s Printing Systems Division are included in Other (income) and expense above and in the Consolidated Statement of Earnings for the nine-months period ended September 30, 2007.

 

As of September 30, 2008, the total unrecognized compensation cost of $1,159 million related to non-vested awards is expected to be recognized over a weighted-average period of approximately three years.

 

There were no significant capitalized stock-based compensation costs at September 30, 2008 and 2007.

 

For Restricted Stock Units (RSUs) awarded after December 31, 2007, dividend equivalents will not be paid. The fair value of such RSUs is determined and fixed on the grant date based on the company’s stock price adjusted for the exclusion of dividend equivalents.

 

10



Table of Contents

 

Notes to Consolidated Financial Statements – (continued)

 

5. Retirement-Related Benefits: The company offers defined benefit pension plans, defined contribution pension plans, as well as nonpension postretirement plans primarily consisting of retiree medical benefits.  The following tables provide the total retirement-related benefit plans’ impact on income from continuing operations before income taxes.

 

For the three months ended September 30:

 

2008

 

2007

 

Yr. to Yr.
Percent
Change

 

(Dollars in millions)

 

 

 

 

 

 

 

Retirement-related plans cost:

 

 

 

 

 

 

 

Defined benefit and contribution pension plans cost

 

$

288

 

$

557

 

(48.3

)%

Nonpension postretirement plans cost

 

93

 

97

 

(4.0

)

Total

 

$

381

 

$

654

 

(41.7

)%

 

For the nine months ended September 30:

 

2008

 

2007

 

Yr. to Yr.
Percent
Change

 

(Dollars in millions)

 

 

 

 

 

 

 

Retirement-related plans cost:

 

 

 

 

 

 

 

Defined benefit and contribution pension plans cost

 

$

939

 

$

1,631

 

(42.4

)%

Nonpension postretirement plans cost

 

278

 

294

 

(5.4

)

Total

 

$

1,217

 

$

1,925

 

(36.8

)%

 

The following tables provide the components of the cost/(income) for the company’s pension plans.

 

Cost/(Income) of Pension Plans

 

 

 

U.S. Plans

 

Non-U.S. Plans

 

For the three months ended September 30:

 

2008

 

2007

 

2008

 

2007

 

(Dollars in millions)

 

 

 

 

 

 

 

 

 

Service cost

 

$

 

$

186

 

$

137

 

$

149

 

Interest cost

 

669

 

646

 

500

 

441

 

Expected return on plan assets

 

(994

)

(926

)

(676

)

(627

)

Amortization of transition assets

 

 

 

 

(1

)

Amortization of prior service cost

 

 

15

 

(32

)

(30

)

Recognized actuarial losses

 

66

 

170

 

150

 

229

 

Net periodic pension (income)/cost—U.S. Plan and material non-U.S. Plans

 

(259

)*

91

*

78

**

161

**

Cost of other defined benefit plans

 

25

 

34

 

54

 

46

 

Total net periodic pension (income)/cost for all defined benefit plans

 

(234

)

125

 

132

 

207

 

Cost of defined contribution plans

 

254

 

102

 

136

 

123

 

Total retirement plan cost recognized in the Consolidated Statement of Earnings

 

$

20

 

$

227

 

$

268

 

$

330

 

 


*   Represents the qualified portion of the IBM Personal Pension Plan.

** Represents the qualified and non-qualified portion of material non-U.S. Plans.

 

11



Table of Contents

 

Notes to Consolidated Financial Statements – (continued)

 

 

 

U.S. Plans

 

Non-U.S. Plans

 

For the nine months ended September 30:

 

2008

 

2007

 

2008

 

2007

 

(Dollars in millions)

 

 

 

 

 

 

 

 

 

Service cost

 

$

 

$

559

 

$

413

 

$

414

 

Interest cost

 

2,006

 

1,939

 

1,524

 

1,248

 

Expected return on plan assets

 

(2,983

)

(2,778

)

(2,071

)

(1,844

)

Amortization of transition assets

 

 

 

 

(2

)

Amortization of prior service cost

 

 

45

 

(100

)

(92

)

Recognized actuarial losses

 

199

 

510

 

460

 

660

 

Net periodic pension (income)/cost—U.S. Plan and material non-U.S. Plans

 

(778

)*

275

*

225

**

384

**

Cost of other defined benefit plans

 

75

 

96

 

170

 

212

 

Total net periodic pension (income)/cost for all defined benefit plans

 

(703

)

371

 

395

 

596

 

Cost of defined contribution plans

 

828

 

315

 

420

 

349

 

Total retirement plan cost recognized in the Consolidated Statement of Earnings

 

$

125

 

$

686

 

$

814

 

$

945

 

 


*   Represents the qualified portion of the IBM Personal Pension Plan.

** Represents the qualified and non-qualified portion of material non-U.S. Plans.

 

In 2008, the company expects to contribute to its non-U.S. defined benefit plans approximately $660 million, which is the legally mandated minimum contribution for its non-U.S. plans. Total contributions to the non-U.S. plans in the first nine months of 2008 were $425 million.

 

On April 29, 2008, the IBM Board of Directors approved a pension adjustment for certain U.S. retirees and beneficiaries. Effective September 1, 2008, this adjustment provided a pension increase to approximately 42,000 retirees who retired before January 1, 1997. The impact of this adjustment will be included in the IBM Personal Pension Plan remeasurement at December 31, 2008, therefore, there will be no impact to 2008 net periodic pension cost.

 

The following table provides the components of the cost for the company’s nonpension postretirement plans.

 

Cost of Nonpension Postretirement Plans

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2008

 

2007

 

2008

 

2007

 

Service cost

 

$

14

 

$

16

 

$

41

 

$

50

 

Interest cost

 

78

 

78

 

234

 

233

 

Amortization of prior service cost

 

(15

)

(15

)

(46

)

(45

)

Expected return on plan assets

 

(2

)

 

(6

)

 

Recognized actuarial losses

 

2

 

4

 

7

 

16

 

Net periodic post retirement plan cost — U.S. Plan

 

77

 

83

 

230

 

254

 

Cost of non-U.S. Plans

 

16

 

14

 

48

 

40

 

Total nonpension postretirement plan cost recognized in the Consolidated Statement of Earnings

 

$

93

 

$

97

 

$

278

 

$

294

 

 

12



Table of Contents

 

Notes to Consolidated Financial Statements – (continued)

 

The company received a $13.7 million subsidy in the third quarter and $33.9 million for the first nine months of 2008 in connection with the Medicare Prescription Drug Improvement and Modernization Act of 2003. A portion of this amount is used by the company to reduce its obligation and expense related to the plan, and the remainder is contributed to the plan to reduce contributions required by the participants. For further information related to the Medicare Prescription Drug Act, see page 115 in the company’s 2007 Annual Report.

 

6. Fair Value:  As highlighted in Note 2 on page 8, the company adopted the provisions of SFAS No. 157 as amended by FSP FAS 157-1 and  FSP FAS 157-2 on January 1, 2008, and FSP FAS 157-3 on October 10, 2008. Pursuant to the provisions of FSP FAS 157-2, the company will not apply the provisions of SFAS No. 157 until January 1, 2009 for the following major categories of nonfinancial assets and liabilities from the Consolidated Statement of Financial Position: Plant, rental machines and other property-net; Goodwill; Intangible assets-net; and, the Asset retirement obligation liabilities within Other accrued expenses and liabilities and Other liabilities. The company recorded no change to its opening balance of Retained earnings as of January 1, 2008 as it did not have any financial instruments requiring retrospective application per the provisions of SFAS No. 157.

 

Fair Value Hierarchy

 

SFAS No. 157 specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs) or reflect the company’s own assumptions of market participant valuation (unobservable inputs). In accordance with SFAS No. 157, these two types of inputs have created the following fair value hierarchy:

 

· Level 1 –

Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;

 

 

· Level 2 –

Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly;

 

 

· Level 3 –

Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

 

SFAS No. 157 requires the use of observable market data if such data is available without undue cost and effort.

 

Measurement of Fair Value

 

The company measures fair value as an exit price using the procedures described below for all assets and liabilities measured at fair value. When available, the company uses unadjusted quoted market prices to measure fair value and classifies such items within Level 1. If quoted market prices are not available, fair value is based upon internally developed models that use, where possible, current market-based or independently-sourced market parameters such as interest rates and  currency rates. Items valued using internally generated models are classified according to the lowest level input or value driver that is significant to the valuation. Thus, an item may be classified in Level 3 even though there may be inputs that are readily observable. If quoted market prices are not available, the valuation model used generally depends on the specific asset or liability being valued. The determination of fair value considers various factors including interest rate yield curves and time value underlying the financial instruments. For derivatives and marketable debt securities, the company uses a discounted cash flow analysis using discount rates commensurate with the duration of the instrument. In the event of an other-than-temporary impairment of a nonpublic equity method investment, the company uses the net asset value of its investment in the investee adjusted using discounted cash flows for the company’s estimate of the price that it would receive to sell the investment to a market participant that would consider all factors that would impact the investment’s fair value. In determining the fair value of financial instruments, the company considers ‘base valuations’ calculated using the methodologies described below for several parameters that market participants would consider in determining fair value.

 

· Counterparty credit risk adjustments are applied to financial instruments, where the base valuation uses market parameters based on an AA (or equivalent) credit rating. Due to the fact that not all counterparties have a AA (or equivalent) credit rating, it is necessary to take into account the actual credit rating of a counterparty to determine the true fair value of such an instrument.

 

13



Table of Contents

 

Notes to Consolidated Financial Statements – (continued)

 

· Credit risk adjustments are applied to reflect the company’s own credit risk when valuing all liabilities measured at fair value. The methodology is consistent with that applied in developing counterparty credit risk adjustments, but incorporates the company’s own credit risk as observed in the credit default swap market.

 

Items Measured at Fair Value on a Recurring Basis

 

The following table presents the company’s assets and liabilities that are measured at fair value on a recurring basis at September 30, 2008 consistent with the fair value hierarchy provisions of SFAS No. 157.

 

(Dollars in millions)

 

Level 1

 

Level 2

 

Level 3

 

Netting (1)

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

60

 

$

6,555

 

$

 

$

 

$

6,615

 

Derivative assets (2)

 

37

 

1,400

 

 

(452

)

985

 

Investments and sundry assets

 

250

 

1

 

 

 

251

 

Total Assets

 

$

347

 

$

7,956

 

$

 

$

(452

)

$

7,851

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities (3)

 

$

 

$

1,044

 

$

 

$

(452

)

$

592

 

Total Liabilities

 

$

 

$

1,044

 

$

 

$

(452

)

$

592

 

 


(1)

Represents netting of derivative exposures covered by a qualifying master netting agreement in accordance with FASB Interpretation No. 39, “Offsetting of Amounts Relating to Certain Contracts,” and credit risk adjustments, if material.

 

 

(2)

The gross balances of derivative assets contained within prepaid expenses and other current assets, and investments and sundry assets in the Consolidated Statement of Financial Position at September 30, 2008 are $941 million and $496 million, respectively.

 

 

(3)

The gross balances of derivative liabilities contained within other accrued expenses and liabilities, and other liabilities in the Consolidated Statement of Financial Position at September 30, 2008 are $734 million and $309 million, respectively.

 

At September 30, 2008, the company did not have any assets or liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3).

 

Items Measured at Fair Value on a Nonrecurring Basis

 

Certain assets are measured at fair value on a nonrecurring basis and therefore are not included in the table above. These assets include equity method investments that are recognized at fair value at the end of the period to the extent that they are deemed to be other-than-temporarily impaired. Certain assets that are measured at fair value on a recurring basis and are included in the table above can also be subject to nonrecurring fair value measurements. These assets include public cost method investments that are deemed to be other-than-temporarily impaired.  The company did not record any other-than-temporary impairment charges for these assets during the first nine months of 2008.

 

7. Accelerated Share Repurchase:  In May 2007, IBM International Group (IIG), a wholly-owned foreign subsidiary of the company repurchased 118.8 million shares of common stock for $12.5 billion under accelerated share repurchase (ASR) agreements with three banks.

 

Pursuant to the ASR agreements, executed on May 25, 2007, IIG paid an initial purchase price of $105.18 per share for the repurchase. The initial purchase price was subject to adjustment based on the volume weighted average price of IBM common stock over a settlement period of three months for each of the banks. The adjustment also reflected certain other amounts including the banks’ carrying costs, compensation for ordinary dividends declared by the company during the settlement period and interest benefits for receiving the $12.5 billion payment in advance of the anticipated purchases by each bank of shares in the open market during its settlement period.  The adjustment amount could be settled in cash, registered shares or unregistered shares at IIG’s option. Under the ASR, IIG had a separate settlement with each of the three banks. The first settlement occurred on September 6, 2007, resulting in a settlement payment to the bank of $151.8 million. The second settlement occurred on December 5, 2007, resulting in a settlement payment to the bank of $253.1 million. The third settlement occurred on March 4, 2008, resulting in a settlement payment to the company of $54.2 million. The settlement amounts were paid in cash at the election of IIG in accordance with the provisions of the ASR and were recorded as adjustments to Stockholders’ equity in the Consolidated Statement of Financial Position on the settlement dates. The adjusted average price paid per share during the ASR period was $108.13, resulting in a total purchase price of $12,851 million versus the original $12,500 million. The $351 million difference was settled in cash.

 

14



Table of Contents

 

Notes to Consolidated Financial Statements – (continued)

 

8. Acquisitions: During the nine months ended September 30, 2008, the company completed 13 acquisitions at an aggregate cost of $6,451 million. The Cognos, Inc. and Telelogic, AB acquisitions are shown separately given their significant purchase prices.

 

Cognos, Inc. (Cognos) – On January 31, 2008, the company acquired 100 percent of the outstanding common shares of Cognos for consideration of $5,021 million consisting of $4,998 million of cash and $24 million of equity instruments. Through this acquisition, IBM and Cognos will become a leading provider of technology and services for business intelligence and performance management, delivering the industry’s most complete, open standards-based platform with the broadest range of expertise to help companies expand the value of their information, optimize their business processes and maximize performance across their enterprises. The company acquired Cognos to accelerate its Information on Demand strategy, a cross-company initiative that combines the company’s strength in information integration, content and data management and business consulting services to unlock the business value of information. Cognos was integrated into the Software segment upon acquisition, and goodwill, as reflected in the table on page 16 has been entirely assigned to the Software segment. It is expected that 20-30 percent of the goodwill will be deductible for tax purposes. The overall weighted average useful life of the intangible assets acquired, excluding goodwill, is 6.5 years.

 

Telelogic, AB (Telelogic) – On April 3, 2008, IBM acquired 100 percent of the outstanding common shares of Telelogic for cash consideration of $885 million. Telelogic is a leading global provider of solutions for automating and supporting best practices across the enterprise from powerful modeling of business processes and enterprise architectures to requirements-driven development of advanced systems and software. Telelogic’s solutions enable organizations to align product, systems and software development lifecycles with business objectives and customer needs to dramatically improve quality and predictability, while significantly reducing time-to-market and overall costs. Clients will benefit from the combined technologies and services of both companies, providing them a wider range of software and system development capabilities used to build complex systems. Telelogic was integrated into the Software segment upon acquisition, and goodwill, as reflected in the table on page 16 has been entirely assigned to the Software segment. None of the goodwill will be deductible for tax purposes. The overall weighted average useful life of the intangible assets acquired, excluding goodwill, is 7.0 years.

 

Other Acquisitions – The company acquired 11 additional companies at an aggregate cost of $544 million that are presented in the table on page 16 as “Other Acquisitions.”

 

The Software segment completed seven other acquisitions, all privately held companies: in the first quarter; AptSoft Corporation, Solid Information Technology, Net Integration Technologies Inc., and Encentuate, Inc; in the second quarter;  Infodyne, Beijing Super Info and FilesX.

 

Global Technology Services (GTS) completed one acquisition in the first quarter: Arsenal Digital Solutions, a privately held company. Arsenal provides global clients with security rich information protection services designed to handle increasing data retention requirements.

 

Global Business Services (GBS) completed one acquisition in the first quarter: u9consult, a privately held company. u9consult complements the company’s existing capabilities in value chain consulting.

 

Systems and Technology completed two acquisitions in the second quarter: Diligent Technologies Corporation and Platform Solutions, Inc (PSI), both privately held companies. Diligent will be an important component of IBM’s New Enterprise Data Center model, which helps clients improve IT efficiency and facilitates the rapid deployment of new IT services for future business growth. PSI’s technologies and skills, along with its intellectual capital, will be integrated into the company’s mainframe product engineering cycles and future product plans. In the second quarter, $24 million of the purchase price of PSI was attributed to the fair value of a dismissed claim from a preexisting lawsuit between IBM and PSI and recorded in SG&A expense. See note 14 on page 20 for additional information regarding this litigation. Also, the company recorded a $24 million In-Process Research and Development (IPR&D) charge related to this acquisition in the second quarter.

 

Purchase price consideration for the “Other Acquisitions” was paid all in cash. All acquisitions are reported in the Consolidated Statement of Cash Flows net of acquired cash and cash equivalents.

 

15



Table of Contents

 

Notes to Consolidated Financial Statements – (continued)

 

The table below reflects the purchase price related to these acquisitions and the resulting purchase price allocations as of September 30, 2008.

 

(Dollars in millions)

 

Amortization
Life (yrs.)

 

Cognos*

 

Telelogic*

 

Other
Acquisitions*

 

Current assets

 

 

 

$

506

 

$

238

 

$

35

 

Fixed assets/noncurrent

 

 

 

125

 

11

 

16

 

Intangible assets:

 

 

 

 

 

 

 

 

 

Goodwill

 

N/A

 

4,189

 

663

 

444

 

Completed technology

 

3 – 7

 

534

 

108

 

47

 

Client relationships

 

3 – 7

 

512

 

127

 

11

 

IPR&D

 

N/A

 

 

 

24

 

Other

 

3 – 7

 

78

 

15

 

20

 

Total assets acquired

 

 

 

5,944

 

1,162

 

597

 

Current liabilities

 

 

 

(797

)

(222

)

(65

)

Noncurrent liabilities

 

 

 

(126

)

(54

)

(13

)

Total liabilities assumed

 

 

 

(923

)

(277

)

(77

)

Settlement of preexisting litigation

 

 

 

 

 

24

 

Total purchase price

 

 

 

$

5,021

 

$

885

 

$

544

 

 


* Purchase price allocation at September 30, 2008 reflects immaterial adjustments from the June 30, 2008 balances.

 

The acquisitions were accounted for as purchase transactions, and accordingly, the assets and liabilities of the acquired entities were recorded at their estimated fair values at the date of acquisition. The primary items that generated the goodwill are the value of the synergies between the acquired companies and IBM and the acquired assembled workforce, neither of which qualify as an amortizable intangible asset. For the “Other Acquisitions,” the overall weighted-average life of the identified amortizable intangible assets acquired is 5.0 years. With the exception of goodwill, these identified intangible assets will be amortized on a straight-line basis over their useful lives. Goodwill of $444 million has been assigned to the Software ($122 million), Global Technology Services ($84 million) and Systems and Technology ($239 million) segments. Substantially, all of the goodwill related to “Other Acquisitions” is not deductible for tax purposes.

 

On July 28, 2008, the company announced it signed a memorandum of understanding to launch a tender offer to acquire ILOG, a publicly held company. ILOG will add business rules management, optimization and visualization technology to the software portfolio. The estimated purchase price is approximately $333 million. This offer is subject to approval from ILOG shareholders and all necessary regulatory clearances.

 

9. Printing Systems Divestiture:  In January 2007, the company announced an agreement with Ricoh Company Limited (Ricoh), a publicly traded company, to form a joint venture company based on IBM’s Printing System Division (a division of the Systems and Technology segment). The company initially created a wholly-owned subsidiary, InfoPrint Solutions Company, LLC (InfoPrint), by contributing specific assets and liabilities from its printer business. The Printing System Division generated approximately $1 billion of revenue in 2006. The InfoPrint portfolio includes solutions for production printing for enterprises and commercial printers as well as solutions for office workgroup environments and industrial segments. On June 1, 2007 (closing date), the company divested 51 percent of its interest in InfoPrint to Ricoh.  The company will divest its remaining ownership to Ricoh quarterly over a three year period from the closing date. At September 30, 2008, the company’s ownership in InfoPrint was 28.5 percent. See IBM’s 2007 Annual Report, Note C, “Acquisitions/Divestitures”, for additional information.

 

16



Table of Contents

 

Notes to Consolidated Financial Statements – (continued)

 

10. Intangible Assets Including Goodwill:  The following schedule details the company’s intangible asset balances by major asset class:

 

 

 

At September 30, 2008

 

(Dollars in millions)

 

Gross Carrying

 

Accumulated

 

Net Carrying

 

Intangible asset class

 

Amount

 

Amortization

 

Amount

 

Capitalized software

 

$

1,905

 

$

(850

)

$

1,055

 

Client-related

 

1,597

 

(621

)

976

 

Completed technology

 

1,133

 

(281

)

851

 

Patents/Trademarks

 

193

 

(65

)

128

 

Other(1)

 

167

 

(128

)

39

 

Total

 

$

4,995

 

$

(1,946

)

$

3,048

 

 

 

 

At December 31, 2007

 

(Dollars in millions)

 

Gross Carrying

 

Accumulated

 

Net Carrying

 

Intangible asset class

 

Amount

 

Amortization

 

Amount

 

Capitalized software

 

$

1,926

 

$

(826

)

$

1,100

 

Client-related

 

1,054

 

(495

)

559

 

Completed technology

 

536

 

(194

)

342

 

Strategic alliances

 

103

 

(103

)

 

Patents/Trademarks

 

128

 

(61

)

67

 

Other(1)

 

154

 

(115

)

39

 

Total

 

$

3,901

 

$

(1,794

)

$

2,107

 

 


(1)

Other intangibles are primarily acquired proprietary and non-proprietary business processes, methodologies and systems and impacts from currency translation.

 

The net carrying amount of intangible assets increased $941 million during the first nine months of 2008, primarily due to acquired intangible assets and capitalized software additions, partially offset by amortization. The aggregate intangible asset amortization expense was $331 million and $985 million for the third quarter and first nine months of 2008, respectively, versus $295 million and $875 million for the third quarter and first nine months ended September 30, 2007, respectively. In addition, in the first nine months of 2008, the company retired $818 million of fully amortized intangible assets, impacting both the gross carrying amount and accumulated amortization by this amount.

 

The amortization expense for each of the five succeeding years relating to intangible assets currently recorded in the Consolidated Statement of Financial Position is estimated to be the following at September 30, 2008:

 

 

 

Capitalized

 

Acquired

 

 

 

(Dollars in millions)

 

Software

 

Intangibles

 

Total

 

2008 (for Q4)

 

$

194

 

$

134

 

$

328

 

2009

 

568

 

490

 

1,058

 

2010

 

248

 

402

 

650

 

2011

 

45

 

349

 

394

 

2012

 

 

283

 

283

 

 

17



Table of Contents

 

Notes to Consolidated Financial Statements – (continued)

 

The changes in the goodwill balances by reportable segment, for the nine months ended September 30, 2008, are as follows:

 

 

 

 

 

 

 

 

 

 

 

Foreign

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency

 

 

 

 

 

 

 

 

 

Purchase

 

 

 

Translation

 

 

 

(Dollars in millions)

 

Balance

 

Goodwill

 

Price

 

 

 

And Other

 

Balance

 

Segment

 

12/31/07

 

Additions

 

Adjustments

 

Divestitures

 

Adjustments

 

9/30/08

 

Global Business Services

 

$

4,041

 

$

 

$

(1

)

$

(16

)

$

(106

)

$

3,920