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NotestoConsolidatedFinancialStatements
INTERNATIONALBUSINESSMACHINESCORPORATION ANDSUBSIDIARYCOMPANIES
_63
toapplytheguidanceofFIN46toallofitsinterestsinspecial-pur-
pose entities(SPEs)asdefinedwithinFIN46(R)andallnon-SPE
VIEs that were created after January 31, 2003. Also in accor-
dance with the transition provisionsof FIN 46(R),thecompany
adoptedFIN 46(R)forallVIEsandSPEsas ofMarch31,2004.
Theseaccountingpronouncementsdidnothaveamaterialeffect
onthecompany’sConsolidatedFinancialStatements.
In 2003, the Emerging Issues Task Force (EITF) reached
a consensus on two revenue recognition issues relating to
the accounting for multiple-element arrangements: Issue No.
00-21, “Accounting for Revenue Arrangements with Multiple
Deliverables (EITF No. 00-21)” and Issue No. 03-05,
“ApplicabilityofAICPASOP97-2toNon-SoftwareDeliverables
in an Arrangement Containing More Than Incidental Software
(EITF No. 03-05).” The consensus opinion in EITF No. 03-05
clarifiesthe scope ofbothEITF No. 00-21 and SOP97-2and
wasreachedonJuly31,2003.Thetransitionprovisionsallowed
either prospective application or a cumulative effect adjust-
ment upon adoption. The company adopted the issues
prospectivelyasofJuly1,2003.EITFNo.00-21 andNo.03-05
didnothaveamaterialeffectonthecompany’sConsolidated
FinancialStatements.
InMay2003,theFASBissuedSFASNo.150,“Accountingfor
Certain Financial Instruments with Characteristics of both
LiabilitiesandEquity.” Itestablishesclassificationandmeasure-
ment standards for three types of freestanding financial instru-
ments that have characteristics of both liabilities and equity.
InstrumentswithinthescopeofSFASNo.150mustbeclassified
as liabilities within the company’s Consolidated Financial
Statementsandbereportedatsettlementdatevalue.Theprovi-
sionsofSFASNo.150areeffectivefor(1)instrumentsenteredinto
ormodifiedafterMay31,2003,and(2)pre-existinginstrumentsas
ofJuly1,2003.InNovember2003,throughtheissuanceofFSP
No.FAS150-3,theFASBindefinitelydeferredtheeffectivedateof
certain provisions of SFAS No. 150, including mandatorily
redeemableinstrumentsastheyrelatetominorityinterestsincon-
solidated finite-lived entities. The adoption of SFAS No. 150, as
modifiedbyFSPNo.FAS150-3,didnothaveamaterialeffecton
the company’s ConsolidatedFinancialStatements.
InApril2003,theFASBissuedSFASNo.149,“Amendment
of Statement 133 on Derivative Instruments and Hedging
Activities.” SFAS No.149 clarifies under what circumstances a
contractwithaninitialnetinvestmentmeetsthecharacteristicsof
aderivativeasdiscussedinSFASNo.133.Italsospecifieswhen
aderivativecontainsafinancingcomponentthatrequiresspecial
reportingintheConsolidatedStatementofCashFlows.SFASNo.
149 amends certain other existing pronouncements in order to
improveconsistencyinreportingthesetypesoftransactions.The
newguidancewaseffectiveforcontractsenteredintoormodified
after June 30, 2003, and for hedging relationships designated
afterJune30,2003.SFASNo.149didnothaveamaterialeffect
onthecompany’sConsolidatedFinancialStatements.
InNovember 2002,the FASBissued InterpretationNo. 45
(FIN45),“Guarantor’sAccountingandDisclosureRequirements
forGuarantees,IncludingIndirectGuaranteesofIndebtedness
ofOthers,” whichaddressesthe disclosurestobe madebya
guarantorinits interim and annualfinancialstatementsabout
its obligations under guarantees. FIN 45 also requires the
recognitionofaliabilitybyaguarantorattheinceptionofcer-
tain guarantees that are entered into or modified after
December 31, 2002. The company adopted the disclosure
requirements of FIN 45 (see note A, “Significant Accounting
Policies,” onpage 57 under“ProductWarranties,” andnote O,
“Contingencies and Commitments,” on page 78) and applied
the recognition and measurement provisions for all material
guarantees entered into or modified in periods beginning
January1,2003.Theadoptionoftherecognitionandmeasure-
mentprovisionsofFIN45didnothaveamaterialeffectonthe
company’sConsolidatedFinancialStatements.
InJuly2002,theFASB issued SFASNo.146,“Accounting
forCostsAssociatedwithExitorDisposalActivities.” SFASNo.
146supersedesEITFNo.94-3,“LiabilityRecognitionforCertain
Employee Termination Benefits and Other Costs to Exit an
Activity (Including Certain Costs Incurred in a Restructuring),”
andrequiresthataliabilityforacostassociatedwithanexitor
disposalactivityberecognizedwhentheliabilityisincurred.The
companyadoptedthisstatementeffectiveJanuary1,2003,and
itsadoptiondidnothaveamaterialeffectontheConsolidated
FinancialStatements.
OnJanuary1, 2003,the companyadoptedSFAS No.143,
“Accounting for Asset Retirement Obligations,” which was
issued in June 2001. SFAS No. 143 provides accounting and
reporting guidance for legal obligations associated with the
retirement of long-lived assets that result from the acquisition,
constructionornormaloperationofalong-livedasset.SFASNo.
143requirestherecordingofanassetandaliabilityequaltothe
presentvalueoftheestimatedcostsassociatedwiththeretire-
mentoflong-livedassetsforwhichalegalobligationexists.The
assetis requiredto bedepreciatedover the life ofthe related
equipmentorfacility,andtheliabilityisrequiredtobeaccreted
each year using a risk-adjusted interest rate. The adoption of
thisstatementdidnothaveamaterialeffectonthecompany’s
ConsolidatedFinancialStatements.
C.Acquisitions/Divestitures
Acquisitions
2005
In2005,thecompany completed16acquisitions at anaggre-
gate cost of $2,022 million, which was paid in cash. These
acquisitionsarereportedintheConsolidatedStatementofCash
Flowsnetofacquiredcashandcashequivalents.Thetable on
page64 representsthepurchasepriceallocationsforallofthe
2005acquisitions.TheAscentialCorporation(Ascential)acqui-
sitionisshownseparatelygivenitssignificantpurchaseprice.