IBM 2003 Annual Report Download - page 92

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2002
In 2002, the company completed 12 acquisitions at an aggregate cost of $3,958 million. In addition, the company paid an addi-
tional $414 million in 2003 resulting from purchase price adjustments.
(dollars in millions)
PwCC
ORIGINAL
AMOUNT
DISCLOSED IN
AMORTIZATION 2002 ANNUAL PURCHASE TOTAL OTHER
LIFE (IN YEARS) REPORT ADJUSTMENTS*ALLOCATION ACQUISITIONS
Current assets $«1,197 $«(228) $««««969 $«264
Fixed assets/non-current 199 (35) 164 102
Intangible assets:
Goodwill N/A 2,461 694 3,155 364
Completed technology 3———66
Strategic alliances 5103 — 103 —
Non-contractual client relationships 4–7 131 — 131 —
Client contracts/backlog 3–5 82 — 82 6
Other identifiable intangible assets 3–5 95 — 95 10
In-process R&D ——— 4
Total assets acquired 4,268 431 4,699 816
Current liabilities (560) (26) (586) (208)
Non-current liabilities (234) 9 (225) (124)
Total liabilities assumed (794) (17) (811) (332)
To tal purchase price $«3,474 $««414 $«3,888 $«484
*Adjustments relate to the amount paid by the company to PricewaterhouseCoopers as a result of the review discussed below as well as other purchase accounting adjustments primarily
related to accounts receivable, prepaid assets and other accruals.
PricewaterhouseCoopers’ Global Business Consulting and Technology
Services Unit (PwCC) Acquisition – On October 1, 2002, the
company purchased PwCC for $3,888 million. The acquisition
of PwCC provides the company with new expertise in busi-
ness strategy, industry-based consulting, process integration
and application management. The company paid $3,474 mil-
lion of the cost related to the acquisition of PwCC in 2002.
The balance was paid in 2003. The purchase price allocation
disclosed in the company’s 2002 Annual Report, which was
based on the initial $3,474 million paid, included an estimated
amount of net tangible assets to be transferred of approxi-
mately $422 million. The recorded amount of net tangible
assets transferred to IBM from PricewaterhouseCoopers (PwC)
on October 1, 2002, was approximately $454 million higher
than the estimate. The amount of recorded net tangible
assets transferred was subject to a review process between
Notes to Consolidated Financial Statements
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
90
This amount, which reflects the relative value and contribu-
tion of the acquired R&D to the company’s existing research
or product lines, was charged to RD&E expense on the com-
pany’s Consolidated Statement of Earnings. The acquired
R&D had not reached technical feasibility, nor did it have an
alternative future use, at date of acquisition.
As indicated above, $2,095 million of the gross purchase
price was paid in cash. However, as part of the transaction,
IBM assumed cash and cash equivalents held in Rational of
$1,053 million, resulting in a net cash payment of $1,042
million. In addition, the company assumed $500 million in
outstanding convertible debt. The convertible debt was sub-
sequently called on March 26, 2003.
Other Acquisitions – The company paid substantially all cash
for the other acquisitions in the table on page 89. Five of
the acquisitions were for software companies, two related
to Strategic Outsourcing and Business Consulting Services
companies and one was a hardware business. The primary
items that generated goodwill are the synergies between the
acquired businesses and the company, and the premium
paid by the company for the right to control the businesses
acquired. The company assigned approximately $74 million
of the goodwill to the Software segment: $203 million of
goodwill to the Global Services segment; and $58 million of
goodwill to the Hardware segment. These assignments were
based upon an analysis of the segments that are expected to
benefit from the acquisitions. Substantially all of the goodwill
is not deductible for tax purposes. The overall weighted-
average life of the intangible assets purchased is 4.3 years.
The results of operations of the acquired businesses were
included in the company’s Consolidated Financial Statements
from the respective dates of acquisition.