IBM 2015 Annual Report Download - page 99

Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
97
For the “Other Acquisitions,” the overall weighted-average life of
the identified amortizable intangible assets acquired is 6.6years.
These identified intangible assets will be amortized on a straight-
line basis over their useful lives. Goodwill of $961million was
assigned to the Software ($948million) and Systems Hardware
($13million) segments. At the acquisition dates, it was expected
that approximately 2percent of the goodwill would be deductible
for tax purposes.
Divestitures
Microelectronics—On October20, 2014, IBM and GLOBAL-
FOUNDRIES announced a definitive agreement in which
GLOBALFOUNDRIES would acquire the company’s Microelec-
tronics business, including existing semiconductor manufacturing
assets and operations in East Fishkill, NY and Essex Junction,
VT. The commercial OEM business to be acquired by GLOBAL-
FOUNDRIES included custom logic and specialty foundry,
manufacturing and related operations. The transaction closed on
July1, 2015.
The transaction included a 10-year exclusive manufacturing
sourcing agreement in which GLOBALFOUNDRIES will provide
server processor semiconductor technology for use in IBM Sys-
tems. The agreement provides the company with capacity and
market-based pricing for current semiconductor nodes in produc-
tion and progression to nodes in the future for both development
and production needs. As part of the transaction, the company
provides GLOBALFOUNDRIES with certain transition services,
including IT, supply chain, packaging and test services and lab
services. The initial term for these transition services is one to three
years, with GLOBALFOUNDRIES having the ability to renew.
In the third quarter of 2014, the company recorded a pre-tax
charge of $4.7billion related to the sale of the Microelectronics dis-
posal group, which was part of the Systems Hardware reportable
segment. The pre-tax charge reflected the fair value less the esti-
mated cost of selling the disposal group including an impairment
to the semiconductor long-lived assets of $2.4billion, $1.5billion
representing the cash consideration expected to be transferred
to GLOBALFOUNDRIES and $0.8billion of other related costs.
Additional pre-tax charges of $116million were recorded during
2015 related to the disposal. The cumulative pre-tax charge was
$4.8billion as of December31, 2015. Additional charges may be
recorded in future periods.
All assets and liabilities of the business, which were held for
sale at June30, 2015, were transferred at closing. The company
transferred $515million of net cash to GLOBALFOUNDRIES in the
third quarter of 2015. This amount included $750million of cash
consideration, adjusted by the amount of working capital due from
GLOBALFOUNDRIES and other miscellaneous items. The remain-
ing cash consideration will be transferred over two years.
Reporting the related assets and liabilities initially as held for
sale at September30, 2014 was based on meeting all of the criteria
for such reporting in the applicable accounting guidance. While
the company met certain criteria for held for sale reporting in prior
periods, it did not meet all of the criteria until September30, 2014.
In addition, at September30, 2014, the company concluded that
the Microelectronics business met the criteria for discontinued
operations reporting. The disposal group constitutes a compo-
nent under accounting guidance. The continuing cash inflows and
outflows with the discontinued component are related to the man-
ufacturing sourcing arrangement and the transition, packaging
and test services. These cash flows are not direct cash flows as
they are not significant and the company will have no significant
continuing involvement.
Summarized financial information for discontinued operations
is shown below.
($ inmillions)
For the year ended December 31: 2015 2014 2013
Total revenu e $ 720 $ 1,335 $1,384
Loss from discontinued operations,
before tax (175) (619) (720)
Loss on disposal, before tax (116) (4,726) —
Total loss from discontinued
operations, before income taxes (291) (5,346) (720)
Provision/(benefi t) for income taxes (117) (1,617) (322)
Loss from discontinued
operations, net of tax $(174) $(3,729 ) $ (398 )
The assets and liabilities at December31, 2014 presented below
were classified as held for sale.
($ inmillions)
At December 31: 2015 2014
Assets:
Accounts receivable $— $245
Inventory —380
Property, plant & equipment, net ——
Other assets —92
Total assets $— $717
Liabilities:
Accounts payable $— $177
Deferred income —87
Other liabilities —163
Total liabilities $— $427
Industry Standard Server—On January23, 2014, IBM and Lenovo
Group Limited (Lenovo) announced a definitive agreement in which
Lenovo would acquire the company’s industry standard server
portfolio (Systemx) for an adjusted purchase price of $2.1billion,
consisting of approximately $1.8billion in cash, with the balance in
Lenovo common stock. The stock represented less than 5percent
equity ownership in Lenovo. The company would sell to Lenovo
its Systemx, BladeCenter and Flex System blade servers and
switches, x86-based Flex integrated systems, NeXtScale and
iDataPlex servers and associated software, blade networking and
maintenance operations.