IBM 1999 Annual Report Download - page 79

notes to consolidated financial statements
International Business Machines Corporation
and Subsidiary Companies
77
The company also uses derivatives to limit its exposure to loss
resulting primarily from fluctuations in foreign currency exchange
rates on anticipated cash transactions among foreign sub-
sidiaries and with the parent company. The company receives
significant intracompany royalties and net payments for goods
and services from its non-U.S. subsidiaries. In anticipation of
these foreign currency flows, and in view of the volatility of the
currency markets, the company selectively employs foreign
currency derivatives to manage its currency risk. The terms of
these instruments generally are less than eighteen months.
For purchased options that hedge qualifying anticipated
transactions, gains and losses are deferred and recognized in
net income in the same period that the underlying transaction
occurs, expires or otherwise is terminated. At December 31,
1999 and 1998, there were no material deferred gains or losses.
The premiums associated with entering into these option
contracts generally are amortized over the life of the options
and are not material to the company’s results. Unamortized
premiums are recorded in prepaid assets. Gains and losses on
purchased options that hedge anticipated transactions that do
not qualify for hedge accounting, and on written options, are
recorded in earnings as they occur and are not material to the
company’s results.
M Other Liabilities and Environmental Remediation
Other liabilities principally comprises accruals for nonpension
postretirement benefits for U.S. employees ($6,392 million) and
nonpension postretirement benefits, indemnity and retirement
plan reserves for non-U.S. employees ($1,028 million). More
detailed discussion of these liabilities appears in note X, “Non-
pension Postretirement Benefits,” on pages 88 and 89, and note
W, “Retirement Plans,” on pages 86 through 88.
Also included in other liabilities are non-current liabilities
associated with infrastructure reduction and restructuring
actions taken through 1993. Other liabilities includes $659 mil-
lion for postemployment preretirement accruals and $503 million
(net of sublease receipts) for accruals for leased space that the
company vacated.
The company employs extensive internal environmental protec-
tion programs that primarily are preventive in nature. The cost
of these ongoing programs is recorded as incurred.
The company continues to participate in environmental assess-
ments and cleanups at a number of locations, including operating
facilities, previously owned facilities and Superfund sites. The
company accrues for all known environmental liabilities when
it becomes probable that the company will incur clean-up
costs and those costs can reasonably be estimated. In addition,
estimated environmental costs that are associated with post-
closure activities (for example, the removal and restoration of
chemical storage facilities and monitoring) are accrued when
the decision is made to close a facility. The total amounts accrued,
which do not reflect actual or anticipated insurance recoveries,
were $240 million and $238 million at December 31, 1999 and
1998, respectively.
The amounts accrued do not cover sites that are in the preliminary
stages of investigation; that is, for which neither the company’s
percentage of responsibility nor the extent of cleanup required
has been identified. Estimated environmental costs are not
expected to materially affect the financial position or results of
the company’s operations in future periods. However, estimates
of future costs are subject to change due to protracted cleanup
periods and changing environmental remediation regulations.