IBM 2008 Annual Report Download - page 85


Notes to Consolidated Financial Statements
INTERNATIONAL BUSINESS MACHINES CORPORATION and Subsidiary Companies

2008
In the fourth quarter, the company announced the sale of certain
processes, resources, assets and third-party contracts related to its
core logistics operations to Geodis. As part of this transaction, the
company will outsource its logistics operations to Geodis which will
enable the company to leverage industry-leading skills and scale and
improve the productivity of the company’s supply chain. The com-
pany expects to record a gain when this transaction closes, which is
anticipated to be in the first quarter of .
2007
In January , the company announced an agreement with Ricoh
Company Limited (Ricoh), a publicly traded company, to form a joint
venture company based on the Printing System Division (a division
of the Systems and Technology segment).
The company initially created a wholly owned subsidiary, InfoPrint
Solutions Company, LLC (InfoPrint), by contributing specific assets
and liabilities from its printer business. The Printing Systems Division
generated approximately $ billion of revenue in . The InfoPrint
portfolio includes solutions for production printing for enterprises
and commercial printers as well as solutions for office workgroup
environments and industrial segments. On June ,  (closing date),
the company divested  percent of its interest in InfoPrint to Ricoh.
The company will divest its remaining  percent ownership to Ricoh
quarterly over the next three years from the closing date. At December
, , the company’s ownership in InfoPrint was . percent.
The total consideration the company agreed to on January ,
 (the date the definitive agreement was signed) was $ million
which was paid in cash to the company on the closing date. The cash
received was consideration for the initial  percent acquisition of
InfoPrint by Ricoh as well as a prepayment for the remaining  per-
cent to be acquired and certain royalties and services to be provided
by the company to InfoPrint. Final consideration for this transaction
will be determined at the end of the three-year period based upon the
participation in the profits and losses recorded by the equity partners.
The company evaluated its ownership and participation in InfoPrint
under the requirements of FIN (R). The company concluded that
InfoPrint met the requirements of a variable interest entity, the company
is not the primary beneficiary of the entity and that deconsolidation of
the applicable net assets was appropriate. The company’s investment in
InfoPrint will be accounted for under the equity method of accounting.
The company will provide maintenance services for one year,
certain hardware products for three years and other information
technology and business process services to InfoPrint for up to five
years. The company assessed the fair value of these arrangements,
and, as a result, deferred $ million of the proceeds. This amount
will be recorded as revenue, primarily in the company’s services seg-
ments, as services are provided to InfoPrint.
The royalty agreements are related to the use of certain of the
company’s trademarks for up to  years. The company assessed the fair
value of these royalty agreements, and, as a result, deferred $ million
of the proceeds. This amount will be recognized as intellectual property
and custom development income as it is earned in subsequent periods.
Net assets contributed, transaction related expenses and provi-
sions were $ million, resulting in an expected total pre-tax gain of
$ million, of which $ million was recorded in other (income)
and expense in the Consolidated Statement of Earnings in the second
quarter of .
The deferred pre-tax gain of $ million at the closing date was
primarily related to: () the transfer of the company’s remaining 
percent interest in InfoPrint to Ricoh, and, () the transfer of certain
maintenance services employees to InfoPrint. The company will recog-
nize this amount over a three-year period as the remaining ownership
interest is divested and the employees are transferred. The pre-tax
gain will be recorded in other (income) and expense in the Consolidated
Statement of Earnings.
2006 ACQUISITIONS
($  )
Amortization Internet Security MRO Other
Life (in Years) Systems, Inc. Software, Inc. Acquisitions
Current assets $ 309 $ 227 $ 28
Fixed assets/noncurrent 62 20 4
Intangible assets:
Goodwill N/A 967 508 211
Completed technology 3 to 5 135 71 8
Client relationships 3 to 7 60 42 22
Other 2 to 4 21 4 4
In-process R&D N/A 3 — —
Total assets acquired 1,557 872 277
Current liabilities (92) (69) (24)
Noncurrent liabilities (97) (64) (13)
Total liabilities assumed (189) (133) (37)
TOTAL PURCHASE PRICE $1,368 $ 739 $240
N/A—Not applicable