Notes to consolidated financial statements (audited)

International Business Machines Corporation and Subsidiary Companies

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I. Intangible assets including goodwill (audited)

The following table details the company’s intangible asset balances by major asset class:

The company amortizes intangible assets over their estimated useful lives unless such lives are deemed indefinite. Amortizable intangible assets are tested for impairment based on undiscounted cash flows, and, if impaired, written down to fair value based on either discounted cash flows or appraised values. Intangible assets with indefinite lives are tested annually for impairment and written down to fair value as required. No impairment of intangible assets has been identified during any of the periods presented.

The net carrying amount of intangible assets decreased by $126 million for the year ended December 31, 2005, primarily due to the amortization of acquired intangibles, partially offset by increases in software capitalizations.

Total amortization was $1,041 million, $956 million and $955 million for the years ended December 31, 2005, 2004 and 2003, respectively. The aggregate amortization expense for acquired intangibles (excluding capitalized software) was $367 million, $370 million and $349 million for the years ended December 31, 2005, 2004 and 2003, respectively.

The future amortization expense for each of the five succeeding years relating to all intangible assets that are currently recorded in the Consolidated Statement of Financial Position is estimated to be the following at December 31, 2005:

The changes in the carrying amount of goodwill, by reporting segment, for the year ended December 31, 2005, are as follows: