IBM 2003 Annual Report Download - page 91

The acquisition was accounted for as a purchase transac-
tion, and accordingly, the assets and liabilities of the acquired
entity were recorded at their estimated fair values at the date
of the acquisition. The primary items that generated the
goodwill are the value of the synergies between Rational and
IBM and the acquired assembled workforce, neither of
which qualify as an amortizable intangible asset. None of
the goodwill is deductible for tax purposes. The overall
weighted-average life of the identified intangible assets
acquired in the purchase of Rational that are subject to
amortization is 4.7 years. With the exception of goodwill, these
identified intangible assets will be amortized on a straight-
line basis over their useful lives. Goodwill of $1,405 million
has been assigned to the Software segment. The company
recorded a pre-tax charge of $9 million for in-process R&D.
C
acquisitions/divestitures
ACQUISITIONS
2003
In 2003, the company completed nine acquisitions at an aggregate cost of $2,536 million.
(dollars in millions)
RATIONAL
ORIGINAL
AMOUNT
DISCLOSED IN
AMORTIZATION FIRST QUARTER PURCHASE TOTAL OTHER
LIFE (IN YEARS) 2003 ADJUSTMENTS*ALLOCATION ACQUISITIONS
Current assets $«1,179 $««51 $«1,230 $«««19
Fixed assets/non-current 83 28 111 2
Intangible assets:
Goodwill NA 1,365 40 1,405 335
Completed technology 3229 — 229 12
Client relationships 7180 — 180 1
Other identifiable intangible assets 2–5 32 — 32 21
In-process R&D 9— 9—
Total assets acquired 3,077 119 3,196 390
Current liabilities (347) (81) (428) (28)
Non-current liabilities (638) 33 (605) 11
Total liabilities assumed (985) (48) (1,033) (17)
To tal purchase price $«2,092 $««71 $«2,163 $«373
*Adjustments primarily relate to acquisition costs, deferred taxes and other accruals.
Rational Software Corporation (Rational) – The largest acquisi-
tion in 2003 was that of Rational. The company purchased
the outstanding stock of Rational for $2,095 million in
cash. In addition, the company issued replacement stock
options with an estimated fair value of $68 million to Rational
employees. Rational provides open, industry standard tools,
and best practices and services for developing business
applications and building software products and systems. The
Rational acquisition provides the company with the ability to
offer a complete development environment for clients. The
transaction was completed on February 21, 2003, from which
time the results of this acquisition were included in the
company’s Consolidated Financial Statements. The company
merged Rational’s business operations and employees into
the company’s Software segment as a new division and brand.
On January 1, 2001, the company adopted SFAS No. 133,
as amended. SFAS No. 133 establishes accounting and report-
ing standards for derivative instruments. As of January 1,
2001, the adoption of the new standard resulted in a cumulative
effect, net-of-tax increase of $219 million to Accumulated
gains and (losses) not affecting retained earnings in the
Stockholders’ equity section of the Consolidated Statement
of Financial Position and a cumulative effect net-of-tax
charge of $6 million included in Other (income) and expense
in the Consolidated Statement of Earnings.
Effective January 1, 2001, the company adopted SFAS No.
140, “Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities—a replacement
of SFAS No. 125.” This statement provides accounting and
reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities. It also revises the
accounting standards for securitizations and transfers of
financial assets and collateral. The adoption did not have a
material effect on the company’s Consolidated Financial
Statements. The standard also requires new disclosures that
are not applicable to the company.
Notes to Consolidated Financial Statements
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
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