IBM 1998 Annual Report Download - page 78

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS International Business Machines Corporation and Subsidiary Companies
76
NOther Liabilities and Environmental
Other liabilities consists principally of accruals for nonpension
postretirement benefits for U.S. employees ($6.6 billion) and
nonpension postretirement benefits, indemnity and retirement
plan reserves for non-U.S. employees ($1.4 billion). More
detailed discussion of these liabilities appears in note X,
“Nonpension Postretirement Benefits,” on pages 83 and 84,
and note W, “Retirement Plans,” on pages 81 through 83.
Also included are non-current liabilities associated with infra-
structure reduction and restructuring actions taken in 1993
and prior. As a result, amounts representing postemployment
preretirement accruals in the amount of $793 million and $681
million (net of sublease receipts) for accruals for leased space
that the company has vacated are included.
The company employs extensive internal environmental pro-
tection programs that are primarily preventative in nature. The
cost of these ongoing programs is recorded as incurred.
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 liabil-
ities for remediation costs when a cleanup program becomes
probable and costs can be reasonably estimated. In addition,
estimated environmental costs associated with post-closure
activities, such as the removal and restoration of chemical stor-
age facilities and monitoring, are accrued when the decision is
made to close a facility. The total amounts accrued, which do
not reflect any insurance recoveries, were $238 million and
$243 million at December 31, 1998 and 1997, respectively.
The amounts accrued do not cover sites that are in the pre-
liminary stages of investigation where neither the company’s
percentage of responsibility nor the extent of cleanup required
has been identified. Estimated environmental costs are not
expected to materially impact the financial position or results
of the company’s operations in future periods. However, envi-
ronmental cleanup periods are protracted in length, and envi-
ronmental costs in future periods are subject to changes in
environmental remediation regulations.
OStockholders’ Equity Activity
Stock Repurchases
The Board of Directors from time to time has authorized the
company to repurchase IBM common stock. The company
repurchased 57,384,100 common shares at a cost of $6.9 bil-
lion and 81,505,200 common shares at a cost of $7.1 billion in
1998 and 1997, respectively. The repurchases resulted in a
reduction of $28,498,409 and $34,388,668 in the stated capital
(par value) associated with common stock in 1998 and 1997,
respectively. In 1997, 10 million repurchased shares were used
to establish the Employee Benefits Trust (see below). In 1998
and 1997, 387,282 and 2,727,864 shares, respectively, were
issued as a result of acquisitions. The rest of the repurchased
shares were retired and restored to the status of authorized
but unissued shares. At December 31, 1998, approximately
$2.8 billion of Board authorization for repurchases remained.
The company plans to purchase shares on the open market
from time to time, depending on market conditions.
In 1995, the IBM Board of Directors authorized the company to
purchase all of its outstanding Series A 7 1 ⁄2 percent preferred
stock. During 1998 and 1997, the company repurchased 51,250
shares at a cost of $5.5 million and 13,450 shares at a cost
of $1.4 million, respectively. This resulted in a $512.50 and
$134.50 ($.01 par value per share) reduction in the stated cap-
ital associated with preferred stock as of December 31, 1998
and 1997, respectively. The repurchased shares were retired
and restored to the status of authorized but unissued shares.
The company plans to purchase remaining shares on the open
market and in private transactions from time to time, depend-
ing on market conditions.
Employee Benefits Trust
Effective November 1, 1997, the company created an employee
benefits trust to which the company contributed 10 million
shares of treasury stock. The company is authorized to
instruct the trustee to sell shares from time to time and to use
proceeds from such sales, and any dividends paid on such
contributed stock, toward the partial satisfaction of the com-
pany’s future obligations under certain of its compensation
and benefits plans, including its retiree medical plans. The
shares held in trust are not considered outstanding for earn-
ings per share purposes until they are committed to be
released. The shares will be voted by the trustee in accor-
dance with its fiduciary duties. As of December 31, 1998 and
1997, no shares have been committed to be released.
At December 31, 1998, the company adjusted its valuation of
the employee benefits trust to fair value. This adjustment
solely impacted line items within stockholders’ equity and did
not affect total stockholders’ equity or net income.