IBM 2005 Annual Report Download - page 79
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Please find page 79 of the 2005 IBM annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.NotestoConsolidatedFinancialStatements
INTERNATIONALBUSINESSMACHINESCORPORATION ANDSUBSIDIARYCOMPANIES
78_ NotestoConsolidatedFinancialStatements
companyalsoagreed,subjecttocertainlimitations,thatitwillnot
assertantitrustclaimsfordamagesrelatedtoitsserverhardware
andserversoftwarebusinessesfortwoyearsand,inanycase,
willnotseektorecoverdamagesonsuchclaimsincurredpriorto
June 30, 2002. Microsoft also released antitrust claims. Under
theagreement,Microsoftagreedtopaythecompany$775mil-
lionandextend$75millionincreditstowardsfuturepurchases
forinternaldeploymentofMicrosoftsoftwareatthecompany.The
$775millionwasreflectedinOther(income)andexpenseinthe
ConsolidatedStatementofEarningsinthesecondquarter,with
thecashreceivedbythecompanyinthethirdquarter.
Thecompanyispartyto,orotherwiseinvolvedin,proceed-
ings brought by U.S. federal or state environmental agencies
under the Comprehensive Environmental Response,
Compensation and Liability Act (“CERCLA”), known as
“Superfund,” or laws similar to CERCLA. Such statutes require
potentially responsible parties to participate in remediation
activitiesregardlessoffaultorownershipofsites.Thecompany
isalsoconductingenvironmentalinvestigationsorremediations
atorin the vicinity of several currentor formeroperating sites
pursuant to permits, administrative orders or agreements with
state environmental agencies, and is involved in lawsuits and
claimsconcerningcertaincurrentorformeroperatingsites.
In accordance with SFAS No. 5, “Accounting for Contin-
gencies,” the company records a provision with respect to a
claim,suit,investigationorproceedingwhenitisprobablethat
aliabilityhasbeenincurredandtheamountofthelosscanbe
reasonably estimated. Any provisions are reviewed at least
quarterly and are adjusted to reflect the impact and status of
settlements, rulings, advice of counsel and other information
pertinent to a particular matter. Any recorded liabilities for the
aboveitems,includinganychangestosuchliabilitiesforthe year
endedDecember31,2005,werenotmaterialtotheConsolidated
Financial Statements. Based on its experience, the company
believes that the damage amounts claimed in the matters
referredtoabovearenotameaningfulindicatorofthepotential
liability.Claims,suits,investigationsandproceedingsareinher-
entlyuncertainanditisnotpossibletopredicttheultimateout-
comeof thematterspreviouslydiscussed.Whilethecompany
willcontinuetodefenditselfvigorouslyinallsuchmatters,itis
possible that the company’s business, financial condition,
resultsofoperations,orcashflowscouldbeaffectedinanypar-
ticularperiodbytheresolutionofoneormoreofthesematters.
Whether any losses, damages or remedies finally deter-
minedinanysuchclaim,suit,investigationorproceedingcould
reasonably have a material effect on the company’s business,
financial condition, results of operations, or cash flow will
depend on a number of variables, including the timing and
amount of such losses or damages, the structure and type of
any such remedies, the significance of the impact any such
losses, damages or remedies may have on the company’s
Consolidated Financial Statements, and the unique facts and
circumstances of the particular matter which may give rise to
additionalfactors.
Commitments
The company’s extended lines of credit to third-party entities
includeunusedamountsof$3,019 millionand$2,714 millionat
December31, 2005 and2004,respectively.Aportion of these
amounts was available to the company’s business partners to
support their working capital needs. In addition, the company
hascommittedtoprovidefuturefinancingtoitsclientsincon-
nection with client purchase agreements for approximately
$2,155 million and $1,686 million at December 31, 2005 and
2004, respectively. The change over the prior year is due to
increasedsigningsoflong-termITinfrastructurearrangements
in which financing is committed by the company to fund a
client’sfuturepurchasesfromthecompany.
The company has applied the provisions of FIN 45 to its
agreementsthatcontainguaranteeorindemnificationclauses.
These provisions expand those required by SFAS No. 5, by
requiringaguarantortorecognizeanddisclosecertaintypesof
guarantees, even if the likelihood of requiring the guarantor’s
performance is remote. The following is a description of
arrangementsinwhichthecompanyistheguarantor.
Thecompanyisapartytoavarietyofagreementspursuant
to which it may be obligated to indemnify the other party with
respecttocertainmatters.Typically,theseobligationsariseinthe
contextofcontractsenteredintobythecompany,underwhich
thecompanycustomarilyagreestoholdtheotherpartyharmless
against losses arising from a breach of representations and
covenantsrelatedtosuchmattersastitletoassetssold,certain
IP rights, specified environmental matters, and certain income
taxes.Ineachofthesecircumstances,paymentbythecompany
isconditionedontheotherpartymakingaclaimpursuanttothe
procedures specified in the particular contract, which proce-
durestypicallyallowthecompanytochallengetheotherparty’s
claims. Further, the company’s obligations under these agree-
ments may be limited in terms of time and/or amount, and in
someinstances,the company mayhaverecourseagainstthird
partiesforcertainpaymentsmadebythecompany.
Itisnotpossibletopredictthemaximumpotentialamount
offuturepaymentsundertheseorsimilaragreementsduetothe
conditionalnatureofthecompany’sobligationsandtheunique
factsandcircumstancesinvolvedineachparticularagreement.
Historically, payments made by the company under these
agreements have not had a material effect on the company’s
business,financialconditionorresultsofoperations.Thecom-
panybelievesthatifitweretoincuralossinanyofthesemat-
ters, such loss should not have a material effect on the com-
pany’sbusiness,financialconditionorresultsofoperations.
In addition, the company guarantees certain loans and
financialcommitments.Themaximumpotentialfuturepayment
underthese financialguaranteeswas$39 millionand$58 mil-
lionatDecember31,2005and2004,respectively. Thefairvalue
of the guarantees recognized in the company’s Consolidated
StatementofFinancialPosition(otherthanthe$74millionforcer-
tain indemnities to Lenovo discussed in note C, “Acquisitions/
Divestitures” onpages66and67)isnotmaterial.