IBM 2007 Annual Report Download - page 76

74
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
Management Discussion ..................................14
Consolidated Statements ..................................58
Notes ........................................................... 64
A-F ............................................................. 64
A. Significant Accounting Policies ..................64
B. Accounting Changes ............................. 73
C. Acquisitions/Divestitures ............................76
D. Financial Instruments
(excluding derivatives).................................82
E. Inventories ...................................................83
F. Financing Receivables .................................83
G-M ..................................................................84
N-S ...................................................................94
T-W ................................................................102
In December 2007, the FASB issued SFAS No. 141(R), “Business
Combinations,” which will become effective in 2009 via prospective
application to new business combinations. This Statement requires
that the acquisition method of accounting be applied to a broader set
of business combinations, amends the definition of a business com-
bination, provides a definition of a business, requires an acquirer to
recognize an acquired business at its fair value at the acquisition date
and requires the assets and liabilities assumed in a business combination
to be measured and recognized at their fair values as of the acquisition
date (with limited exceptions). The company will adopt this Statement
in fiscal year 2009 and its effects on future periods will depend on the
nature and significance of any acquisitions subject to this Statement.
In December 2007, the FASB issued SFAS No. 160, “Noncontrol-
ling Interests in Consolidated Financial Statements — an amendment
of ARB No. 51.” This Statement requires that the noncontrolling
interest in the equity of a subsidiary be accounted for and reported as
equity, provides revised guidance on the treatment of net income and
losses attributable to the noncontrolling interest and changes in own-
ership interests in a subsidiary and requires additional disclosures that
identify and distinguish between the interests of the controlling and
noncontrolling owners. Pursuant to the transition provisions of SFAS
No. 160, the company will adopt the Statement in fiscal year 2009 via
retrospective application of the presentation and disclosure require-
ments. The company does not expect the adoption of this Statement
to have a material effect on the Consolidated Financial Statements.
In February 2007, the FASB issued SFAS No. 159, “The Fair
Value Option for Financial Assets and Financial Liabilities, Including
an amendment of FASB Statement No. 115,” which will become
effective in 2008. SFAS No. 159 permits entities to measure eligible
financial assets, financial liabilities and firm commitments at fair
value, on an instrument-by-instrument basis, that are otherwise not
permitted to be accounted for at fair value under other generally
accepted accounting principles. The fair value measurement election
is irrevocable and subsequent changes in fair value must be recorded
in earnings. The company will adopt this Statement in fiscal year
2008 and does not expect the adoption of this Statement to have a
material effect on the Consolidated Financial Statements.
In September 2006, the FASB finalized SFAS No. 157 which will
become effective in 2008 except as amended by FSP FAS 157-1 and
FSP FAS 157-2 as previously described. This Statement defines fair
value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements; however, it does not
require any new fair value measurements. The provisions of SFAS
No. 157 will be applied prospectively to fair value measurements and
disclosures for financial assets and financial liabilities and nonfinancial
assets and nonfinancial liabilities recognized or disclosed at fair value
in the financial statements on at least an annual basis beginning in the
first quarter of 2008. While the company does not expect the adop-
tion of this Statement to have a material impact on its Consolidated
Financial Statements at this time, the company will monitor any
additional implementation guidance that is issued that addresses the
fair value measurements for certain financial assets, such as private
market pension plan assets, and nonfinancial assets and nonfinancial
liabilities not disclosed at fair value in the financial statements on at
least an annual basis.
Standards Implemented
In the first quarter of 2007, the company adopted SFAS No. 156,
“Accounting for Servicing of Financial Assets — an amendment of
FASB Statement No. 140,” that provides guidance on accounting
for separately recognized servicing assets and servicing liabilities.
In accordance with the provisions of SFAS No. 156, separately
recognized servicing assets and servicing liabilities must be initially
measured at fair value, if practicable. Subsequent to initial recogni-
tion, the company may use either the amortization method or the
fair value measurement method to account for servicing assets and
servicing liabilities within the scope of this Statement. The adoption
of this Statement did not have a material effect on the Consolidated
Financial Statements.
In the first quarter of 2007, the company adopted SFAS No. 155,
“Accounting for Certain Hybrid Financial Instruments — an amend-
ment of FASB Statements No. 133 and 140,” which permits fair value
remeasurement for any hybrid financial instrument that contains an
embedded derivative that otherwise would require bifurcation in
accordance with the provisions of SFAS No. 133, “Accounting for
Derivative Instruments and Hedging Activities.” The adoption of
this Statement did not have a material effect on the Consolidated
Financial Statements.
The company adopted FASB Interpretation No. 48, “Accounting
for Uncertainty in Income Taxes — an Interpretation of FASB
Statement No. 109” (FIN 48) on January 1, 2007. FIN 48 clarifies the
accounting and reporting for uncertainties in income tax law. This
Interpretation prescribes a comprehensive model for the financial
statement recognition, measurement, presentation and disclosure of
uncertain tax positions taken or expected to be taken in income tax
returns. See note O, “Taxes,” on pages 97 to 99 for additional infor-
mation, including the effects of adoption on the Consolidated
Statement of Financial Position.