IBM 2006 Annual Report Download - page 92

will continue to do so. The SEC has informed the company that the
investigation should not be construed as an indication that any viola-
tions of law have occurred.
In July 2005, two lawsuits were filed in the United States District
Court for the Southern District of New York related to the company’s
disclosures concerning first-quarter 2005 earnings and the expensing of
equity compensation. One lawsuit named as defendants IBM and
IBM’s Senior Vice President and Chief Financial Officer. The other
lawsuit named as defendants IBM, IBM’s Senior Vice President and
Chief Financial Officer and IBM’s Chairman and Chief Executive
Officer. Both complaints alleged that defendants made certain misrep-
resentations in violation of Section 10(b) and 20(a) of the Securities
Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. On
September 6, 2005, counsel in one of these lawsuits filed a motion
seeking to have the lawsuits consolidated, and for the appointment of
lead plaintiff and lead counsel. Pursuant to an Order from the Court
dated March 28, 2006, the two lawsuits were consolidated into a sin-
gle action captioned “In re. International Business Machines Corp.
Securities Litigation.” Pursuant to a schedule set by the Court, Plaintiffs
served on the company an Amended Consolidated Complaint on May
19, 2006. IBM filed a Motion to Dismiss the Amended Consolidated
Complaint on June 23, 2006. Plaintiffs filed their response to IBM’s
Motion on July 21, 2006; and IBM filed its final brief in support of its
Motion on August 2, 2006. On September 20, 2006, the Court denied
IBM’s Motion to Dismiss. On January 16, 2007, Plaintiffs filed a
motion for class certification. IBM filed its response on January 23,
2007 and the Plaintiffs’ reply is due to be filed in late February 2007.
In January 2004, the Seoul District Prosecutors Office in South
Korea announced it had brought criminal bid-rigging charges against
several companies, including IBM Korea and LG IBM (a joint ven-
ture between IBM Korea and LG Electronics, which has since been
dissolved, effective January, 2005) and had also charged employees of
some of those entities with, among other things, bribery of certain
officials of government-controlled entities in Korea and bid rigging.
IBM Korea and LG IBM cooperated fully with authorities in these
matters. A number of individuals, including former IBM Korea and
LG IBM employees, were subsequently found guilty and sentenced.
IBM Korea and LG IBM were also required to pay fines. Debarment
orders were imposed at different times, covering a period of no more
than a year from the date of issuance, which barred IBM Korea from
doing business directly with certain government-controlled entities in
Korea. All debarment orders have since expired and when they were
in force did not prohibit IBM Korea from selling products and ser-
vices to business partners who sold to government-controlled entities
in Korea. In addition, the U.S. Department of Justice and the SEC
have both contacted the company in connection with this matter.
On January 24, 2006, a putative class action lawsuit was filed
against IBM in federal court in San Francisco on behalf of technical
support workers whose primary responsibilities are or were to install
and maintain computer software and hardware. The complaint
was subsequently amended on March 13, 2006. The First Amended
Complaint, among other things, adds four additional named plaintiffs
and modifies the definition of the workers purportedly included in the
class. The suit, Rosenburg, et. al., v. IBM, alleges the company failed
to pay overtime wages pursuant to the Fair Labor Standards Act and
state law, and asserts violations of various state wage requirements,
including recordkeeping and meal-break provisions. The suit also
asserts certain violations of ERISA. Relief sought includes back wages,
corresponding 401(k) and pension plan credits, interest and attorneys’
fees. On January 11, 2007, the District Court granted preliminary
approval to a class-wide settlement whereby IBM will place into a
fund $65 million, plus certain interest accruing between December 1,
2006 until such time as the fund is transferred to the claims adminis-
trator, to pay claims asserted by class members, Plaintiffs’ attorneys’
fees and administrative costs. Individual payments will be based on
factors, including the class member’s state of employment, time
worked in the relevant job position and base salary. The District
Court is scheduled to have a hearing to finally approve the settlement
in July 2007. The charge associated with this settlement was consis-
tent with a provision previously established by the company.
On October 23, 2006, the company filed two lawsuits against
Amazon.com, Inc. (Amazon), in the United States District Court for
the Eastern District of Texas, one in the Lufkin Division and one in
the Tyler Division. The Lufkin suit alleges that Amazon has unlaw-
fully infringed three IBM patents. The Tyler suit alleges that Amazon
has unlawfully infringed two IBM patents. The Lufkin Division patents
cover methods for storing data, presenting applications and presenting
advertising on a computer network. The Tyler Division patents cover
an electronic catalog requisition system and related information
retrieval and ordering methods and a computer-implemented hyper-
text system and method for operating a computer-implemented
object-oriented hypertext system. Each suit seeks, among other
things, compensatory damages and injunctive relief. On December
14, 2006, Amazon answered, counterclaimed in each suit and sought
to transfer the Lufkin suit to consolidate it with Tyler suit. IBM filed
its opposition to the transfer motion on January 2, 2007 and answered
the counterclaims in both suits on January 8. On January 16, 2007, the
Lufkin court denied Amazon’s transfer motion. The courts have
issued scheduling orders in both suits. The Lufkin action has been set
for trial on April 14, 2008 and the Tyler action on October 13, 2008.
On November 29, 2006, the company filed a lawsuit against Platform
Solutions, Inc. (PSI) in the United States District Court for the Southern
District of New York. IBM asserted claims for patent infringement and
breach of contract in connection with PSI’s development and marketing
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
90 2006 Annual Report
Consolidated Statements ......................................................... 
Notes .....................................................................................
A-G ......................................................................................... 62
H-M ......................................................................................... 
N-S .......................................................................................... 
N. Stockholders’ Equity Activity .......................................... 
O. Contingencies and Commitments ................................... 
P. Taxes ................................................................................ 
Q. Research, Development and Engineering ...................... 
R. 2005 Actions .................................................................... 
S. Earnings Per Share of Common Stock ............................. 
T-X .......................................................................................... 
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