IBM 2003 Annual Report Download - page 94

The primary items that generated goodwill are the value
of the acquired assembled workforce and the synergies
between Informix and the company created by the combina-
tion. Goodwill of $591 million has been assigned to the
Software segment. Almost all of the goodwill is deductible
for tax purposes. This transaction occurred after June 30,
2001, and therefore, the acquired goodwill is not subject to
amortization. The overall weighted-average life of intangible
assets purchased from Informix is 4.2 years. The results of
operations of Informix were included in the company’s
Consolidated Financial Statements as of July 2, 2001.
Other Acquisition – The primary items that generated good-
will are the synergies between the acquired business and the
company and the premium paid by the company for the
right to control the business acquired. Goodwill of $25 mil-
lion has been assigned to the Global Services segment. The
goodwill is not deductible for tax purposes. The results of
operations of the acquired business were included in the
company’s Consolidated Financial Statements from the
date of acquisition.
Overall
The company’s 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 acquired tangible net assets comprise primarily cash,
accounts receivable, land, buildings and leasehold improve-
ments. The acquired identifiable intangible assets comprise
primarily completed technology, trademarks, client lists,
employee agreements and leasehold interests. The identifiable
intangible assets are amortized on a straight-line basis,
generally not to exceed seven years. Goodwill from acqui-
sitions that were consummated prior to July 1, 2001, was
amortized over five years. The company adopted SFAS No. 142
on January 1, 2002, and ceased amortizing goodwill as of that
date. The results of operations of all acquired businesses
were included in the company’s Consolidated Financial
Statements from the respective dates of acquisition.
DIVESTITURES
2002
On December 31, 2002, the company sold its HDD business
to Hitachi. The total gross proceeds of the sale were $2 billion
(excluding purchase price adjustments), of which $1,414 mil-
lion was received by IBM at closing. According to the terms
of the agreement, the remaining proceeds will be received
one and three years after closing. The remaining proceeds
are fixed and are not dependent or variable based upon the
sold business’ earnings or performance. The company trans-
ferred approximately $244 million of cash as part of the
HDD business, resulting in a net cash inflow in 2002 related
to the HDD transaction of $1,170 million. The company
received approximately $156 million from Hitachi on
December 31, 2003 for the payment due one year after closing
and paid approximately $59 million to Hitachi for certain
contractual items resulting in a net cash inflow in 2003 of
$97 million.
IBM has entered into an arms-length five-year supply
agreement with Hitachi, effective January 1, 2003, designed to
provide the company with a majority of its ongoing internal
disk drive requirements for the company’s Server, Storage
and Personal Systems products.
The loss on disposal recorded in 2002 was approximately
$382 million, net of tax, and was recorded in Loss from discon-
tinued operations in the Consolidated Statement of Earnings.
See note A, “Significant Accounting Policies,” on page 80
for the “Basis of Presentation” for the discontinued operations.
In the second and fourth quarters of 2002, the company
announced certain asset and workforce reduction actions,
and excess leased space charges related to its discontinued
HDD business. The company recorded a charge of approxi-
mately $508 million, net of tax, in discontinued operations
associated with these announced actions.
Summarized selected financial information for the dis-
continued operations is as follows:
(dollars in millions)
FOR THE YEAR ENDED DECEMBER 31: 2003 2002*2001
Revenue $«— $«1,946 $«2,799
Loss before
income taxes $«29 $«2,037 $««««497
Income tax expense/(benefit) 1(282) (74))
Loss from
discontinued operations $«30 $«1,755 $««««423
*At closing, the company incurred a significant U.S. tax charge of approximately
$248 million related to the repatriation of divestiture proceeds from certain countries
with low tax rates. This amount was included in the Income tax expense/(benefit) line
item of discontinued operations.
D
financial instruments
(excluding derivatives)
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents, marketable securities, notes and
other accounts receivable and other investments are financial
assets with carrying values that approximate fair value.
Accounts payable, other accrued expenses and liabilities,
and short-term and long-term debt are financial liabilities
with carrying values that approximate fair value.
MARKETABLE SECURITIES*
The following table summarizes the company’s marketable
securities, all of which are considered available for sale, and
alliance investments.
Notes to Consolidated Financial Statements
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
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