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Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
98
IBM and Lenovo entered into a strategic relationship which
included a global OEM and reseller agreement for sales of IBM’s
industry-leading entry and midrange Storwize disk storage
systems, tape storage systems, General Parallel File System soft-
ware, SmartCloud Entry offering, and elements of IBM’s system
software, including Systems Director and Platform Computing
solutions. Effective with the initial closing of the transaction, Lenovo
assumed related customer service and maintenance operations.
IBM will continue to provide maintenance delivery on Lenovo’s
behalf for an extended period of time. In addition, as part of the
transaction agreement, the company will provide Lenovo with cer-
tain transition services, including IT and supply chain services.
The initial term for these transition services ranges from less than
one year to three years. Lenovo can renew certain services for an
additional year.
The initial closing was completed on October1, 2014. A subse-
quent closing occurred in most other countries in which there was
a large business footprint on December31, 2014. The remaining
countries closed on March31, 2015 resulting in a pre-tax gain of
$16million in the first quarter of 2015. In the second quarter of 2015,
an additional pre-tax gain of $36million was recorded attributed to
certain adjustments resolved during the quarter. An assessment
of the ongoing contractual terms of the transaction resulted in the
recognition of a pre-tax gain of $11million in the fourth quarter of
2015. A total pre-tax gain of $63million was recognized in 2015.
Overall, the company expects to recognize a total pre-tax gain
on the sale of approximately $1.6billion, which does not include
associated costs related to transition and performance-based
costs. Net of these charges, the pre-tax gain is approximately
$1.2billion, of which $1.1billion was recorded in the fourth quarter
of 2014. The balance of the gain is expected to be recognized in
2019 upon conclusion of the maintenance agreement.
Customer Care—On September10, 2013, IBM and SYNNEX
announced a definitive agreement in which SYNNEX would
acquire the company’s worldwide customer care business pro-
cess outsourcing services business for $501million, consisting
of approximately $430million in cash, net of balance sheet
adjustments, and $71million in SYNNEX common stock, which
represented less than 5percent equity ownership in SYNNEX. As
part of the transaction, SYNNEX entered into a multi-year agree-
ment with the company, and Concentrix, SYNNEX’s outsourcing
business, became an IBM strategic business partner for global
customer care business process outsourcing services.
The initial closing was completed on January31, 2014, with
subsequent closings occurring in 2014. For the full year of 2014,
the company recorded a pre-tax gain of $202million related to
this transaction.
In the second quarter of 2015, resolution of the final balance
sheet adjustments was concluded. An assessment of the ongoing
contractual terms of the transaction resulted in the recognition of
a pre-tax gain of $7million in 2015. Through December31, 2015,
the cumulative pre-tax gain attributed to this transaction was
$209million.
Retail Store Solutions—On April17, 2012, the company announced
that it had signed a definitive agreement with Toshiba TEC for
the sale of its Retail Store Solutions business. As part of the
transaction, the company agreed to transfer the maintenance
business to Toshiba TEC within three years of the original closing
of the transaction.
The company completed the final phase of the transfer of the
maintenance workforce to Toshiba in the second quarter of 2015.
The parts and inventory transfer to Toshiba will commence in 2018.
An assessment of the ongoing contractual terms of the transaction
resulted in the recognition of a pre-tax gain of $8million in 2015.
Overall, the company has recognized a cumulative total pre-tax
gain on the sale of $519million.
Others—In addition to those above, the company completed the
following divestitures:
2015—In the fourth quarter of 2015, the company completed the
divestiture of its Kenexa Compensation Portfolio business to
SCMC Acquisition, LLC. and the divestiture of the Rational System
Architect and SPSS Data Collections suite of products to UNICOM.
In the second quarter of 2015, the company completed the dives-
titure of its Travel & Transportation kiosk business to Embross
North America Ltd., and the divestiture of its Telecom Expense
Management product to Tangoe, Inc. In the first quarter of 2015,
the company completed the divestiture of the Algorithmics Col-
lateral Management suite of products to SmartStream, Inc. and
the divestiture of the Commerce ILOG Supply Chain Optimization
Tools suite of products to Llamasoft, Inc.
All of the above transactions closed in 2015 and the financial
terms related to these transactions were not material. Overall, the
company recorded a pre-tax gain of $81million related to these
transactions in 2015.
2014—In the second quarter of 2014, the company completed the
divestitures of its solidDB suite of products to UNICOM Systems,
Inc. and its Human Capital Management business line in France
to Sopra Group. In the third quarter of 2014, the company com-
pleted the divestiture of its Cognos Finance product to UNICOM
Systems, Inc., its IMS Tools Suite of products to Rocket Software,
Inc., its Sterling Transportation Management System to Kewill Inc.,
and its ILOG JViews and Elixir Visualization products to Rogue
Wave Software, Inc. In the fourth quarter of 2014, the company
completed the divestiture of its Focal Point and PurifyPlus product
suite to UNICOM Systems, Inc.
All of the above transactions closed in 2014 and the financial
terms related to these transactions were not material. Overall, the
company recorded a pre-tax gain of $132million related to these
transactions in 2014.