IBM 2008 Annual Report Download - page 100

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Notes to Consolidated Financial Statements
INTERNATIONAL BUSINESS MACHINES CORPORATION and Subsidiary Companies
Management Discussion ............................................................................................. 18
Consolidated Statements ............................................................................................ 60
Notes ............................................................................................................................... 66
A – E ........................................................................................................................66
F – J ........................................................................................................................86
K– Q .......................................................................................................................88
K. BORROWINGS .................................................................................................88
L. DERIVATIVES AND HEDGING TRANSACTIONS ................................................90
M. OTHER LIABILITIES ..........................................................................................94
N. STOCKHOLDERS’ EQUITY ACTIVITY ...............................................................95
O. CONTINGENCIES AND COMMITMENTS .........................................................97
P. TAXES ...............................................................................................................99
Q. RESEARCH, DEVELOPMENT AND ENGINEERING ......................................... 101
R –W ..................................................................................................................... 102
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
services 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 mat-
ter. In March , the company received a request from the SEC for
additional information.
On March , , the company was temporarily suspended
from participating in new business with U.S. Federal government
agencies. The notice of temporary suspension was issued by the
Environmental Protection Agency (EPA) and related to an investiga-
tion by the EPA of possible violations of the Procurement Integrity
provisions of the Office of Federal Procurement Policy Act regarding
a specific bid for business with the EPA originally submitted in March
. In addition, the U.S. Attorney’s Office for the Eastern District
of Virginia served the company and certain employees with grand jury
subpoenas related to the bid, requesting testimony and documents
regarding interactions between employees of the EPA and certain
company employees. On April , , the company announced an
agreement with the EPA that terminated the temporary suspension
order. In January , the U.S. Attorney’s Office for the Eastern
District of Virginia confirmed that it was closing its investigation and
would bring no charges in this matter. The company is continuing to
cooperate with the EPA.
The company is a defendant in a civil lawsuit brought in Tokyo
District Court by Tokyo Leasing Co., Ltd., which seeks to recover
losses that it allegedly suffered after IXI Co., Ltd. initiated civil reha-
bilitation (bankruptcy) proceedings in Japan and apparently failed to
pay Tokyo Leasing amounts for which Tokyo Leasing now seeks to
hold IBM and others liable. The claims in this suit include tort and
breach of contract.
The company is a defendant in numerous actions filed after
January ,  in the Supreme Court for the State of New York,
county of Broome, on behalf of hundreds of plaintiffs. The com-
plaints allege numerous and different causes of action, including for
negligence and recklessness, private nuisance and trespass. Plaintiffs
in these cases seek medical monitoring and claim damages in unspec-
ified amounts for a variety of personal injuries and property damages
allegedly arising out of the presence of groundwater contamination
and vapor intrusion of groundwater contaminants into certain struc-
tures in which plaintiffs reside or resided, or conducted business,
allegedly resulting from the release of chemicals into the environment
by the company at its former manufacturing and development facility
in Endicott. These complaints also seek punitive damages in an
unspecified amount.
The company is party to, or otherwise involved in, proceedings
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 activities regardless of fault or ownership of sites. The
company is also conducting environmental investigations, assessments
or remediations at or in the vicinity of several current or former
operating sites globally pursuant to permits, administrative orders or
agreements with country, state or local environmental agencies, and
is involved in lawsuits and claims concerning certain current or for-
mer operating sites.
The company is also subject to ongoing tax examinations and
governmental assessments in various jurisdictions. Along with many
other U.S. companies doing business in Brazil, the company is involved
in various challenges with Brazilian authorities regarding non-income
tax assessments and non-income tax litigation matters. These matters
principally relate to claims for taxes on the importation of computer
software. The total amounts related to these matters are approxi-
mately $. billion, including amounts currently in litigation and
other amounts. In November , the company won a significant
case in the Superior Chamber of the federal administrative tax court
in Brazil and is awaiting the published decision of the case. Assuming
this decision is upheld, the remaining total potential amount related to
these matters for all applicable years is approximately $ million.
In addition, the company has received an income tax assessment from
Mexican authorities relating to the deductibility of certain warranty
payments. In response, the company has filed an appeal in the Mexican
Federal Fiscal court. The total potential amount related to this matter
for all applicable years is approximately $ million. The company
believes it will prevail on these matters and that these amounts are
not meaningful indicators of liability.
In accordance with SFAS No. , “Accounting for Contingencies,”
(SFAS No. ), the company records a provision with respect to a claim,
suit, investigation or proceeding when it is probable that a liability
has been incurred and the amount of the loss can be reasonably esti-
mated. Provisions related to income tax matters are recorded in
accordance with FIN . Claims and proceedings are reviewed at