IBM 2006 Annual Report Download - page 79

Black
MAC
390 CG10
(Dollars in millions)
CANDLE
ORIGINAL
AMOUNT
DISCLOSED IN
AMORTIZATION SECOND PURCHASE TOTAL OTHER
2004 ACQUISITIONS LIFE (IN YEARS) QTR. 2004 ADJUSTMENTS* ALLOCATION MAERSK ACQUISITIONS
Current assets $  $ () $  $  $ 
Fixed assets/non-current  ()   
Intangible assets:
Goodwill N/A     
Completed technology –  —   
Client relationships –  —   
Other identifiable intangible assets   —   
Total assets acquired     ,
Current liabilities () () () () ()
Non-current liabilities () — () () ()
Total liabilities assumed () () () () ()
Total purchase price $  $ () $  $  $ 
* Adjustments primarily relate to acquisition costs, deferred taxes and other accruals.
N/A—Not applicable
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
77
DIVESTITURES
2006
As discussed below, the company divested its Personal Computing
business to Lenovo Group Limited (Lenovo) in 2005. A portion of
the total consideration received in that transaction included Lenovo
equity. This equity was subject to specific lock-up provisions.
In the second quarter of 2006, the company and Lenovo agreed
to revise these restrictions such that the company can now fully
divest its shares in Lenovo after November 1, 2007 versus the prior
lock-up expiration date of May 1, 2008. As a result of the change in
the lock-up restrictions, the company now considers all Lenovo
shares to be within the scope of SFAS No. 115 and has classified
them as available-for-sale.
On August 4, 2006, the company signed an agreement with a finan-
cial institution to establish a structure, with the institution acting as
agent, to facilitate the company’s disposition of Lenovo shares from
time to time, after their release from the lock-up provisions. At Decem-
ber 31, 2006, the company had not divested any shares through the
financial institution. (See note X, “Subsequent Events,” on page 115).
For the year ended December 31, 2006, the company recorded a
pre-tax gain of $45 million related to the divestiture. This amount
was primarily due to a reversal of an indemnity provision recorded
at the closing.
In addition, at December 31, 2006, the deferred income balance
related to services arrangements entered into at the closing date, as
discussed on page 78, was $85 million.
2005
On April 30, 2005 (closing date), the company completed the divesti-
ture of its Personal Computing business to Lenovo, a publicly traded
company on the Hong Kong Stock Exchange. The total consider-
ation that the company agreed to on December 7, 2004 (the date the
definitive agreement was signed) was $1,750 million which included
$650 million in cash, $600 million in Lenovo equity (valued at the
December 6, 2004 closing price) and the transfer of approximately
$500 million of net liabilities. At the closing date, total consideration
was valued at $1,725 million, comprised of: $650 million in cash, $542
million in Lenovo equity and $533 million in net liabilities trans-
ferred. Transaction related expenses and provisions were $628 mil-
lion, resulting in a net pre-tax gain of $1,097 million which was
recorded in Other (income) and expense in the Consolidated
Statement of Earnings in the second quarter of 2005. In addition, the
company paid Lenovo $138 million in cash primarily to assume addi-
tional liabilities outside the scope of the original agreement. This
transaction had no impact on Income from Continuing Operations.
Total net cash proceeds, less the deposit received at the end of 2004
for $25 million, related to these transactions were $487 million.
The equity received at the closing date represented 9.9 percent of
ordinary voting shares and 18.9 percent of total ownership in Lenovo.
Subsequent to the closing date, Lenovo’s capital structure changed
due to new third-party investments. As a result, the company’s equity
at June 30, 2005 represented 9.9 percent of ordinary voting shares and
17.05 percent of total ownership in Lenovo. The equity securities
have been accounted for under the cost method of accounting. The