IBM 1999 Annual Report Download - page 74

notes to consolidated financial statements
International Business Machines Corporation
and Subsidiary Companies
either assets or liabilities in the statement of financial position
and to measure those instruments at fair value. Additionally, the
fair value adjustments will affect either stockholders’ equity or
net income depending on whether the derivative instrument
qualifies as a hedge for accounting purposes and, if so, the
nature of the hedging activity. The company will adopt this stan-
dard as of January 1, 2001. Management does not expect the
adoption to have a material effect on the company’s results of
operations; however, the effect on the company’s financial posi-
tion depends on the fair values of the company’s derivatives
and related financial instruments at the date of adoption.
C Common Stock Split
On January 26, 1999, the company’s Board of Directors approved
a two-for-one stock split effective May 10, 1999. On April 27, 1999,
the stockholders of the company approved amendments to the
Certificate of Incorporation to increase the number of authorized
shares of common stock from 1,875 million to 4,687.5 million,
which was required to effect that stock split. In addition, the
amendment reduced the par value of the common shares from
$.50 to $.20 per share. Common stockholders of record at the
close of business on May 10, 1999, received one additional
share for each share held. All share and per share data presented
in the Consolidated Financial Statements and notes of this Annual
Report reflect the two-for-one stock split.
D Acquisitions/ Divestitures
Acquisitions
In 1999, the company completed 17 acquisitions at a cost of
approximately $1.5 billion. Three of the major acquisitions for
the year are detailed in the following discussion.
On September 24, 1999, the company acquired all of the
outstanding capital stock of Sequent Computer Systems, Inc.
(Sequent) for approximately $828 million. Sequent was an
acknowledged leader in systems based on NUMA (non-uniform
memory access) architecture.
On September 29, 1999, the company acquired all of the
outstanding stock of Mylex Corporation (Mylex) for approximately
$259 million. Mylex was a leading developer of technology for
moving, storing, protecting and managing data in desktop and
networked environments.
On September 27, 1999, the company acquired DASCOM, Inc.
(DASCOM), an industry leader in Web-based and enterprise-
security technology, for approximately $115 million.
The company accounted for each acquisition as a purchase
transaction. The effects of these acquisitions on the company’s
Consolidated Financial Statements were not material. Hence, the
company has not provided pro forma financial statements as if
the companies had combined at the beginning of the current
period or the immediately preceding period.
The company engaged a nationally recognized independent
appraisal firm to express an opinion on the fair value of the net
assets that the company acquired to serve as a basis for the
following allocation of the purchase price.
(Dollars in millions) Sequent Mylex DASCOM
Purchase price $«828 $«259 $«115
Tangible net assets (liabilities) 382 67 (17)
Identifiable intangible assets 187 35 13
Current technology 87 26 19
Goodwill 183 145 92
In-process research
and development 85 7 19
Deferred tax liabilities
related to identifiable
intangible assets «(96) «««««(21) ÷÷÷(11)
The tangible net assets comprise primarily cash, accounts
receivable, land, buildings and leasehold improvements. The iden-
tifiable intangible assets comprise primarily patents, trademarks,
customer lists, assembled workforce, employee agreements
and leasehold interests. The identifiable intangible assets and
goodwill will be amortized on a straight-line basis over a five-
year period.
In connection with the acquisitions of Sequent, Mylex and
DASCOM, the company recorded a pre-tax charge for research,
development and engineering of $111 million ($111 million
after tax, or $.06 per diluted common share) for acquired in-
process research and development (IPR&D). At the date of each
acquisition, the IPR&Dprojects had not yet reached technolog-
ical feasibility and had no alternative future uses. The value of
the IPR&Dreflects the relative value and contribution of the
acquired research and development to the company’s existing
research or product lines.
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