IBM 2005 Annual Report Download - page 67
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NotestoConsolidatedFinancialStatements
INTERNATIONALBUSINESSMACHINESCORPORATION ANDSUBSIDIARYCOMPANIES
66_ NotestoConsolidatedFinancialStatements
(Dollarsinmillions)
RATIONAL
ORIGINAL
AMOUNT
DISCLOSED
AMORTIZATION INFIRST PURCHASE TOTAL OTHER
LIFE(INYEARS) QTR. 2003 ADJUSTMENTS* ALLOCATION ACQUISITIONS
Currentassets $«1,179 $««51 $««1,230 $«««19
Fixedassets/non-current 83 28 111 2
Intangibleassets:
Goodwill NA 1,365 40 1,405 335
Completedtechnology 3 229 — 229 12
Clientrelationships 7 180 — 180 1
Otheridentifiableintangibleassets 2–5 32 — 32 21
In-processR&D 9— 9—
Totalassetsacquired 3,077 119 3,196 390
Currentliabilities (347) (81) (428) (28)
Non-currentliabilities (638) 33 (605) 11
Totalliabilitiesassumed (985) (48) (1,033) (17)
Totalpurchaseprice $«2,092 $««71 $««2,163 $«373
* Adjustmentsprimarilyrelatetoacquisitioncosts,deferredtaxesandotheraccruals.
NA—NotApplicable
RATIONAL – On February 21, 2003, the company purchased the
outstandingstockofRationalfor$2,092 millionincash.Inaddi-
tion, the company issued replacement stock options with an
estimatedfairvalueof$71 milliontoRationalemployees foratotal
purchasepriceof$2,163million.Rationalprovidesopen,industry-
standard tools and best practices and services for developing
businessapplicationsandbuilding softwareproductsand sys-
tems. The Rational acquisition provided the company with the
abilitytoofferacompletedevelopmentenvironmentforclients.
Rational was integrated into the company’s Software segment
uponacquisitionandGoodwill,as reflectedinthetable above,
has been assigned to the Software segment. The overall
weighted-average life of the identified intangible assets
acquired, excludingGoodwill, is4.7years.
As indicated above, $2,092 million of the gross purchase
pricewaspaidincash.However,aspartofthetransaction,the
companyassumedcashandcashequivalentsheldinRational
of$1,053million,resultinginanetcashpaymentof$1,039 mil-
lion.Inaddition,thecompanyassumed$500millioninoutstand-
ing convertible debt. The convertible debt was subsequently
calledonMarch26,2003.
OTHERACQUISITIONS –Thecompany acquiredeightothercompa-
niesthatareshownasOtherAcquisitionsinthetable above.The
company paidsubstantially all cashfortheother acquisitions.
Fiveoftheacquisitionswereforsoftwarecompanies,tworelated
toStrategicOutsourcingandBusinessConsultingServicescom-
paniesandonewasahardwarebusiness. Thecompanyassigned
approximately$74millionoftheGoodwilltotheSoftwareseg-
ment; $203millionofGoodwilltotheGlobalServicessegment;
and$58millionofGoodwilltotheSystemsandTechnologyGroup
segment. The overall weighted-average life of the intangible
assetspurchased,excludingGoodwill, is4.3years.
Divestitures
2005
OnApril30,2005(“closingdate”),thecompanycompletedthe
divestitureofitsPersonalComputing businesstoLenovo,apub-
licly traded company on the Hong Kong Stock Exchange. The
totalconsiderationthatthecompanyagreedtoonDecember7,
2004(thedatethedefinitiveagreementwassigned)was$1,750
million which included $650 million in cash, $600 million in
Lenovo equity (valued at the December 6, 2004 closing price)
andthetransferofapproximately$500millionofnetliabilities. At
theclosingdate,totalconsiderationwasvaluedat$1,725million,
comprisedof:$650millionincash,$542millioninLenovoequity
and$533millioninnetliabilitiestransferred. Transactionrelated
expensesandprovisionswere$628million,resultinginanetpre-
taxgainof$1,097millionwhichwasrecordedinOther(income)
and expense in the Consolidated Statement of Earnings in the
secondquarter of 2005. Inaddition, thecompanypaidLenovo
$138millionincashprimarilytoassumeadditionalliabilitiesout-
sidethescopeoftheoriginalagreement. Thistransactionhadno
impact on Income from Continuing Operations. Total net cash
proceeds,lessthedepositreceivedattheend of2004 for$25
million,relatedtothesetransactionswere$487million.
Theequityreceivedattheclosingdaterepresented9.9per-
centofordinaryvotingsharesand18.9percentoftotalownership
inLenovo.Subsequenttotheclosingdate,Lenovo’scapitalstruc-
turechangedduetonewthird-partyinvestments. Asaresult,the
company’sequityatJune30,2005represented9.9percentof
ordinary voting shares and17.05 percent of total ownership in
Lenovo. The equity securities have been accounted for under
thecostmethodofaccounting. Theequityissubjecttospecific
lock-upprovisionsthatrestrictthecompanyfromdivestingthe
securities. These restrictions apply to specific equity tranches
andexpireoverathree-yearperiodfromtheclosingdate. The