Acquisitions/Divestitures:

9 Months Ended

Sep. 30, 2012

Acquisitions/Divestitures:

Acquisitions/Divestitures:

9. Acquisitions/Divestitures:

Acquisitions: During the nine months ended September 30, 2012, the company completed ten acquisitions at an aggregate cost of $2,613 million.

The Software segment completed eight acquisitions: in the first quarter, Green Hat Software Limited (Green Hat), Emptoris Inc. (Emptoris) and Worklight, Inc. (Worklight), all privately held companies, and DemandTec, Inc. (DemandTec), a publicly held company; in the second quarter, Varicent Software Inc. (Varicent), Vivisimo Inc. (Vivisimo) and Tealeaf Technology Inc. (Tealeaf), all privately held companies; and in the third quarter, Butterfly Software, Ltd. (Butterfly), a privately held company. Systems and Technology (STG) completed two acquisitions: in the first quarter, Platform Computing Corporation (Platform Computing), a privately held company; and in the third quarter, Texas Memory Systems (TMS), a privately held company. All acquisitions were for 100 percent of the acquired companies.

The table below reflects the purchase price related to these acquisitions and the resulting purchase price allocations as of September 30, 2012:

	Amortization	Total
(Dollars in millions)	Life (in yrs.)	Acquisitions
Current assets		$	277
Fixed assets/noncurrent assets		216
Intangible assets:
Goodwill	N/A	1,879
Completed technology	5-7	406
Client relationships	7	194
In-process R&D	N/A	9
Patents/trademarks	1-7	37
Total assets acquired		3,018
Current liabilities		(142		)
Noncurrent liabilities		(264		)
Total liabilities assumed		(406		)
Total purchase price		$	2,613

N/A - Not applicable

Each acquisition further complemented and enhanced the company’s portfolio of product and services offerings. Green Hat helps customers improve the quality of software applications by enabling developers to use cloud computing technologies to conduct testing of a software application prior to its delivery. Emptoris expands the company’s cloud-based analytics offerings that provide supply chain intelligence leading to better inventory management and cost efficiencies. Worklight delivers mobile application management capabilities to clients across a wide range of industries. The acquisition enhances the company’s comprehensive mobile portfolio, which is designed to help global corporations leverage the proliferation of all mobile devices — from laptops and smartphones to tablets. DemandTec delivers cloud-based analytics software to help organizations improve their price, promotion and product mix within the broad context of enterprise commerce. Varicent’s software automates and analyzes data across sales, finance, human resources and IT departments to uncover trends and optimize sales performance and operations. Vivisimo software automates the discovery of big data, regardless of its format or where it resides, providing decision makers with a view of key business information necessary to drive new initiatives. Tealeaf provides a full suite of customer experience management software, which analyzes interactions on websites and mobile devices. Butterfly offers storage planning software and storage migration tools, helping companies save storage space, operational time, IT budget and power consumption. Platform Computing’s focused technical and distributed computing management software helps clients create, integrate and manage shared computing environments that are used in compute-and-data intensive applications such as simulations, computer modeling and analytics. TMS designs and sells high-performance solid state storage solutions. Purchase price consideration for all acquisitions as reflected in the table above, is paid primarily in cash.  All acquisitions are reported in the Consolidated Statement of Cash Flows net of acquired cash and cash equivalents.

The acquisitions were accounted for as business combinations using the acquisition method, and accordingly, the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired entity were recorded at their estimated fair values at the date of acquisition. The primary items that generated the goodwill are the value of the synergies between the acquired companies and IBM and the acquired assembled work-force, neither of which qualify as an amortizable intangible asset.  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 $1,879 million has been assigned to the Software ($1,413 million), Global Business Services ($5 million), Global Technology Services ($21 million) and Systems and Technology ($441 million) segments. It is expected that approximately 20 percent of the goodwill will be deductible for tax purposes.

On August 27, 2012, the company announced that it had entered into a definitive agreement to acquire Kenexa Corporation (Kenexa), a publicly held company headquartered in Wayne, Pennsylvania. Kenexa, a leading provider of recruiting and talent management solutions, brings a unique combination of Cloud-based technology and consulting services that integrates both people and processes, providing solutions to engage a smarter, more effective workforce across their most critical businesses functions. The acquisition is expected to close in the fourth quarter of 2012.

Divestitures: In the third quarter, the company completed the first two phases of the sale of its Retail Stores Solutions business to Toshiba Tec. The company received net proceeds of $572 million, recorded a note receivable of $251 million and recognized a net pre-tax gain of $447 million in the third quarter of 2012. The gain was net of the fair value of certain contractual terms, certain transaction costs and the assets and liabilities sold. The gain was recorded in other (income) and expense in the Consolidated Statement of Earnings and the net proceeds are reflected within divestitures of businesses, net of cash transferred within cash flows from investing activities in the Consolidated Statement of Cash Flows. In addition, in the third quarter, the company acquired a 19.9 percent ownership interest for $161 million in Toshiba Global Commerce Solutions Holding Corporation, the new holding company that Toshiba Tec established for the business. The company will retain this ownership for a period of three years at which time Toshiba Tec will purchase the company’s equity interest for the initial acquisition value. This investment was recorded in investments and sundry assets in the Consolidated Statement of Financial Position and the payment is reflected within purchases of marketable securities and other investments within cash flows from investing activities in the Consolidated Statement of Cash Flows.

The company expects to close the next phase of the divestiture in the fourth quarter of 2012 with subsequent closings expected in 2013. Overall, the company expects to recognize a total pre-tax gain on the sale of approximately $500 million.