IBM 1997 Annual Report Download - page 63

notes to consolidated financial statements
International Business Machines Corporation
and Subsidiary Companies
61
For purchased options that hedge anticipated trans-
actions, gains and losses are deferred and recognized
in other income in the same period that the underlying
transaction occurs, expires or is otherwise terminated. At
December 31, 1997 and 1996, there were no material
deferred gains or losses. The premiums associated with
entering into option contracts are generally amortized
over the life of the options and are not material to the
company’s results. Unamortized premiums are included
in prepaid assets. All written options are marked to market
monthly and are not material to the company’s results.
The company also enters into derivative transactions to
moderate the impact that an appreciation of the dollar
relative to other currencies would have on the translation
of foreign earnings. These transactions do not qualify as
hedges for accounting purposes, and their foreign
exchange gains and losses are recorded in earnings as
they occur.
KSale and Securitization of Receivables
At year-end 1997, the company had a net balance of
$.9 billion in assets under management from the
securitization of loans, leases and trade receivables,
compared to $1.1 billion at year-end 1996. The company
received total cash proceeds of approximately $3.0 billion
and $4.0 billion in 1997 and 1996, respectively, from the
sale and securitization of these receivables and assets.
No material gain or loss resulted from these transactions.
Recourse amounts associated with the aforementioned
sales and securitization activities are expected to be
minimal, and adequate reserves are in place to cover
potential losses.
LOther Liabilities and Environmental
Other liabilities consists principally of accruals for
nonpension postretirement benefits for U.S. employees
($6.8 billion) and indemnity and retirement plan reserves
for non-U.S. employees ($1.3 billion). More detailed
discussion of these liabilities appears in note X,
“Nonpension Postretirement Benefits,” on pages 73 and
74, and note W, “Retirement Plans,” on pages 71 through
73. In addition, noncurrent liabilities associated with
prior infrastructure reduction actions amounted to
$1.8 billion at December 31, 1997.
The company continues to participate in environmental
assessments and cleanups at a number of locations,
including operating facilities, previously owned facilities
and Superfund sites. The company accrues for all known
environmental liabilities for remediation costs when a
cleanup program becomes probable and costs can be
reasonably estimated. Estimated environmental costs
associated with post-closure activities, such as the removal
and restoration of chemical storage facilities and
monitoring, are accrued when the decision is made to
close a facility. The amounts accrued, which do not
reflect any insurance recoveries, were $243 million and
$244 million at December 31, 1997 and 1996, respectively.
The amounts accrued do not cover sites that are in the
preliminary stages of investigation where neither the
company’s percentage of responsibility nor the extent of
cleanup required has been identified. Also excluded is
the cost of internal environmental protection programs
that are primarily preventive in nature. Estimated
environmental costs are not expected to materially impact
the financial position or results of the company’s
operations in future periods. However, environmental
cleanup periods are protracted in length, and
environmental costs in future periods are subject
to changes in environmental remediation regulations.
MContingencies
On February 25, 1993, a consolidated and amended class
action complaint was filed against the company in the
United States District Court for the Southern District of
New York alleging violations of Section 12 of the Securities
Act of 1933 and Section 10 of the Securities Exchange
Act of 1934. The complaint alleges, among other matters,
that the company disseminated false and misleading
statements concerning its financial condition and
dividends during certain periods of 1992, as a result of
which plaintiffs were injured in connection with their
purchases of IBM stock during the period of September
30, 1992, through December 14, 1992. The plaintiffs seek
monetary damages. On February 3, 1997, Judge Jed S.
Rakoff issued an order granting the company’s motion
for summary judgment in this case in its entirety. Plaintiffs
have filed an appeal which is pending. The company does
not believe that the ultimate outcome of this matter will
have a material effect on its results of operations or its
financial position.