IBM 2003 Annual Report Download - page 93

both parties under the terms of the agreement. As a result
of the review process and other adjustments, the company
paid an additional amount to PwC of $397 million in July
2003. Substantially all of the payment was accounted for as
incremental goodwill due to the fact that the net tangible
assets recorded by IBM as of October 1, 2002, included the
incremental amount. The difference between the $397 mil-
lion payment in July and the total purchase price adjustment
in the table on page 90 is due to transaction costs incurred
by the company.
The company paid $3,266 million of the purchase price in
cash, $294 million primarily in the form of restricted shares
of IBM common stock and $328 million in notes convertible
into restricted shares of IBM common stock.
In connection with the acquisition, the company
incurred approximately $196 million of pre-tax, one-time
compensation costs for certain PwCC partners and employ-
ees. This amount relates to restricted stock awards and the
compensation element of the convertible notes issued as
part of the purchase consideration and was recorded in the
fourth quarter of 2002. The portion of this amount recorded
as part of SG&A in the Consolidated Statement of Earnings
as compensation expense for the convertible notes equals
the difference between the fair value and the face value of
the notes.
As a result of its acquisition of PwCC, the company
recorded a liability of approximately $601 million in the fourth
quarter of 2002 to rebalance its workforce and to vacate
excess leased space. All employees affected by this action
were notified as of December 31, 2002. The portion of the
liability relating to IBM people and space was approximately
$318 million, substantially all of which was recorded as part
of SG&A in the Consolidated Statement of Earnings. The
portion of the liability relating to acquired PwCC workforce
and leased space was approximately $283 million and was
included as part of the liabilities assumed for purchase
accounting and are included in the table on page 90. Also see
page 107 for additional information on these initiatives.
Almost half of the goodwill was estimated to be generated
by the value of the acquired assembled workforce. The
acquired assembled workforce is treated as goodwill under
SFAS No. 141. The remaining items that generated goodwill
are synergies between PwCC and the company created by
the combination, and the premium paid by the company for
the right to control PwCC. The goodwill has been assigned
to the Global Services segment. The company estimates that
approximately two-thirds of the goodwill is deductible for
tax purposes. The overall weighted-average life of amortizable
intangible assets purchased from PwC is 4.8 years. The results
of operations of PwCC were included in the company’s
Consolidated Financial Statements as of October 1, 2002.
Other Acquisitions – The company paid cash for the other
acquisitions. Six of the acquisitions were for software com-
panies, including Crossworlds Software, Inc., and Access360.
The other five acquisitions were Strategic Outsourcing and
Business Consulting Services companies. 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. Approximately $300 million of the goodwill has
been assigned to the Software segment and the balance to the
Global Services segment. The goodwill is not deductible for
tax purposes. The overall weighted-average life of the intangi-
ble assets purchased is 3.4 years. The results of operations of
the acquired businesses were included in the company’s
Consolidated Financial Statements from the respective dates
of acquisition.
2001
In 2001, the company completed two acquisitions at a cost
of approximately $1,082 million.
(dollars in millions)
AMORTIZATION OTHER
LIFE (IN YEARS) INFORMIX ACQUISITION
Current assets $««««156 $««57
Fixed/non-current assets 41 21
Intangible assets:
Goodwill 591 25
Client lists 5220 —
Completed technology 3140 —
Trademarks 210 —
Total assets acquired 1,158 103
Deferred revenue (101) (2)
Payables/accrued expenses (55) (21)
Total liabilities assumed (156) (23)
Total purchase price $«1,002 $««80
Informix Corporation (Informix) – The larger acquisition was
Informix database software business. The company purchased
Informix in the third quarter of 2001. The company paid
approximately $1 billion in cash for the net assets of the
business. Under the terms of the acquisition, the company
paid $889 million of the purchase price in 2001. The balance
was paid in January 2003. The Informix acquisition provided
the company with a database software system for data ware-
housing, business intelligence and transaction-handling
systems that are used by more than 100,000 clients. In addi-
tion, the acquisition significantly increased the size of the
company’s UNIX database business.
Notes to Consolidated Financial Statements
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
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