IBM 2009 Annual Report Download - page 102

Notes to Consolidated Financial Statements
INTERNATIONAL BUSINESS MACHINES CORPORATION AND SUBSIDIARY COMPANIES
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 venture 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 pro-
hibit 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 matter. In
March 2008, the company received a request from the SEC for
additional information.
The company was a defendant in a civil lawsuit brought in
Tokyo District Court by Tokyo Leasing Co., Ltd., which sought
to recover losses that it allegedly suffered after IXI Co., Ltd. initi-
ated civil rehabilitation (bankruptcy) proceedings in Japan and
apparently failed to pay Tokyo Leasing amounts for which Tokyo
Leasing sought to hold IBM and others liable. The claims in this
suit included tort and breach of contract. The action against IBM
was resolved in December 2009 and is no longer pending.
The company is a defendant in numerous actions filed after
January 1, 2008 in the Supreme Court for the State of New
York, county of Broome, on behalf of hundreds of plaintiffs.
The complaints 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 unspecified 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 structures 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 facil-
ity 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 own-
ership 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 former 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 authori-
ties regarding non-income tax assessments and non-income
tax litigation matters. These matters include claims for taxes on
the importation of computer software. In November 2008, the
company won a significant case in the Superior Chamber of the
federal administrative tax court in Brazil, and in late July 2009, the
company received written confirmation regarding this decision.
The total potential amount related to the remaining matters for
all applicable years is approximately $600 million. The company
believes it will prevail on these matters and that this amount is
not a meaningful indicator of liability.
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 estimated. Claims and proceedings are reviewed at
least quarterly and provisions are taken or adjusted to reflect
the impact and status of settlements, rulings, advice of coun-
sel and other information pertinent to a particular matter. Any
recorded liabilities, including any changes to such liabilities for
the year ended December 31, 2009, were not material to the
Consolidated Financial Statements. Based on its experience,
the company believes that the damage amounts claimed in the
matters previously referred to are not a meaningful indicator of
the potential liability. Claims, suits, investigations and proceed-
ings are inherently uncertain and it is not possible to predict the
ultimate outcome of the matters previously discussed. While
the company will continue to defend itself vigorously, it is pos-
sible that the company’s business, financial condition, results
of operations or cash flows could be affected in any particular
period by the resolution of one or more of these matters.
Whether any losses, damages or remedies finally determined
in any such claim, suit, investigation or proceeding could reason-
ably have a material effect on the company’s business, financial
condition, results of operations or cash flows will depend on a
number of variables, including the timing and amount of such
losses or damages; the structure and type of any such reme-
dies; the significance of the impact any such losses, damages or
remedies may have on the Consolidated Financial Statements;
and the unique facts and circumstances of the particular matter
which may give rise to additional factors.
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