IBM 2006 Annual Report Download - page 75

Black
MAC
390 CG10
In June 2005, the FASB issued FASB Staff Position (FSP) No. FAS
143-1, “Accounting for Electronic Equipment Waste Obligations,”
(FSP FAS 143-1) that provides guidance on how commercial users
and producers of electronic equipment should recognize and measure
asset retirement obligations associated with the European Directive
2002/96/EC on Waste Electrical and Electronic Equipment (the
“Directive”). In 2005, the company adopted FSP FAS 143-1 in those
European Union (EU) member countries that transposed the
Directive into country-specific laws. Its adoption did not have a mate-
rial effect on the company’s Consolidated Financial Statements. The
effect of applying FSP FAS 143-1 in the remaining countries in future
periods is not expected to have a material effect on the company’s
Consolidated Financial Statements.
In the third quarter of 2005, the company adopted SFAS No. 153,
“Exchanges of Nonmonetary Assets—an amendment of APB Opinion
No. 29.” SFAS No. 153 requires that exchanges of productive assets
be accounted for at fair value unless fair value cannot be reasonably
determined or the transaction lacks commercial substance. The adop-
tion of SFAS No. 153 did not have a material effect on the company’s
Consolidated Financial Statements.
The American Jobs Creation Act of 2004 (the “Act”) introduced a
temporary incentive for the company to repatriate earnings accumu-
lated outside the U.S. In the fourth quarter of 2004, the company
adopted the provisions of FSP No. FAS 109-2, “Accounting and
Disclosure Guidance for the Foreign Earnings Repatriation Provision
within the American Jobs Creation Act of 2004.” According to FSP
No. FAS 109-2, the company was allowed time beyond the financial
reporting period of enactment to evaluate the effects of the Act on its
plan for repatriation of foreign earnings for purposes of applying
SFAS No. 109, “Accounting for Income Taxes.” Accordingly, as of
December 31, 2004, the company did not adjust its income tax
expense or deferred tax liability to reflect the possible effect of the
new repatriation provision. In 2005, the company repatriated $9.5
billion of foreign earnings and recorded income tax expense of $525
million associated with this repatriation.
In January 2003, the FASB issued FASB Interpretation No. 46
(FIN 46), “Consolidation of Variable Interest Entities,” and amended
it by issuing FIN 46(R) in December 2003. FIN 46(R) addresses
consolidation by business enterprises of variable interest entities
(VIEs) that either: (1) do not have sufficient equity investment at risk
to permit the entity to finance its activities without additional subor-
dinated financial support or (2) have equity investors that lack an
essential characteristic of a controlling financial interest. In accor-
dance with the transition provisions of FIN 46(R), the company
adopted FIN 46(R) for all VIEs and special-purpose entities as
defined within FIN 46(R) as of March 31, 2004. These accounting
pronouncements did not have a material effect on the company’s
Consolidated Financial Statements.
C. ACQUISITIONS/DIVESTITURES
ACQUISITIONS
2006
In 2006, the company completed 13 acquisitions at an aggregate cost
of $4,817 million, which was paid in cash. The cost of these acquisi-
tions is reported in the Consolidated Statement of Cash Flows net of
acquired cash and cash equivalents. The tables on page 74 and 75
represent the purchase price allocations for all of the 2006 acquisitions.
The Micromuse Inc., FileNet Corporation, Internet Security Systems,
Inc. and MRO Software, Inc. acquisitions are shown separately given
their significant purchase prices.
MICROMUSE, INC.– On February 15, 2006, the company acquired
100 percent of the outstanding common shares of Micromuse, Inc. for
cash consideration of $862 million. Micromuse is a leading provider
of network management software used by banks, telecommunications
carriers, governments, retailers and other organizations to monitor
and manage their sophisticated technology infrastructures. The soft-
ware helps customers manage increasingly complex IT systems that
support the proliferation of voice, data and video traffic due to the
growing adoption of voice over IP (VoIP)-based audio and video
services delivered over the internet. The combination of Micromuse’s
software and the company’s IT services management technology can
provide a comprehensive approach to help customers reduce the com-
plexity of their IT environments, lower operational costs and address
compliance mandates. Micromuse was integrated into the Software
segment upon acquisition and Goodwill, as reflected in the table on
page 74, has been entirely assigned to the Software segment. The
overall weighted-average useful life of the intangible assets purchased,
excluding Goodwill, is 4.0 years.
In the fourth quarter, as a result of completing the integration of
Micromuse’s legal and intercompany structure into the company’s
legal structure, the company recorded an increase in current assets and
current liabilities with a corresponding offset in Goodwill totaling
$137 million. These increases relate to an increase in both deferred
tax assets and current tax liabilities. These adjustments are reflected in
the table on page 74.
FILENET CORPORATION – On October 12, 2006, the company
acquired 100 percent of the outstanding common shares of FileNet
Corporation for cash consideration of $1,609 million. FileNet is a
leading provider of business process and content management solu-
tions that help companies simplify critical and everyday decision
making processes and give organizations a competitive advantage. The
FileNet acquisition enhances the company’s ability to meet increasing
client demand for a combination of content- and process-centric busi-
ness process management capabilities, which is driven by changing
governance and compliance mandates, as well as the need to integrate
content-centric business processes with enterprise applications. The
company has integrated its business process management and service
oriented architecture (SOA) technologies with the FileNet platform to
allow customers to access content wherever it may reside and use it in
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
73