IBM 2015 Annual Report Download - page 122

Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
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defendants. Plaintiffs allege that defendants violated Sections 20(a)
and 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
thereunder. In May 2015, a related putative class action was also
commenced in the United States District Court for the Southern
District of New York based on the same underlying facts, alleging
violations of the Employee Retirement Income Security Act. The
company, management’s Retirement Plans Committee, and three
current or former IBM executives are named as defendants.
In August 2015, IBM learned that the SEC is conducting an
investigation relating to revenue recognition with respect to the
accounting treatment of certain transactions in the U.S., UK and
Ireland. The company is cooperating with the SEC in this matter.
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 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 dam-
ages 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 facility in Endicott. These
complaints also seek punitive damages in an unspecified amount.
The parties have settled substantially all of these cases.
The company is party to, or otherwise involved in, 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 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 com-
pany is involved in various challenges with Brazilian tax authorities
regarding non-income tax assessments and non-income tax liti-
gation matters. The total potential amount related to these matters
for all applicable years is approximately $460million. The company
believes it will prevail on these matters and that this amount is not
a meaningful indicator of liability.
Commitments
The company’s extended lines of credit to third-party entities
include unused amounts of $5,477 million and $5,365 million at
December31, 2015 and 2014, respectively. A portion of these
amounts was available to the company’s business partners to
support their working capital needs. In addition, the company has
committed to provide future financing to its clients in connection
with client purchase agreements for $2,097 million and $1,816 mil-
lion at December31, 2015 and 2014, respectively.
The company has applied the guidance requiring a guarantor
to disclose certain types of guarantees, even if the likelihood of
requiring the guarantor’s performance is remote. The following is a
description of arrangements in which the company is the guarantor.
The company is a party to a variety of agreements pursuant
to which it may be obligated to indemnify the other party with
respect to certain matters. Typically, these obligations arise in the
context of contracts entered into by the company, under which
the company customarily agrees to hold the other party harmless
against losses arising from a breach of representations and cov-
enants related to such matters as title to assets sold, certain IP
rights, specified environmental matters, third-party performance
of nonfinancial contractual obligations and certain income taxes.
In each of these circumstances, payment by the company is
conditioned on the other party making a claim pursuant to the
procedures specified in the particular contract, the procedures of
which typically allow the company to challenge the other party’s
claims. While typically indemnification provisions do not include a
contractual maximum on the company’s payment, the company’s
obligations under these agreements may be limited in terms of time
and/or nature of claim, and in some instances, the company may
have recourse against third parties for certain payments made by
the company.
It is not possible to predict the maximum potential amount of
future payments under these or similar agreements due to the
conditional nature of the company’s obligations and the unique
facts and circumstances involved in each particular agreement.
Historically, payments made by the company under these agree-
ments have not had a material effect on the company’s business,
financial condition or results of operations.
In addition, the company guarantees certain loans and financial
commitments. The maximum potential future payment under these
financial guarantees was $34million and $46million at Decem-
ber31, 2015 and 2014, respectively. The fair value of the guarantees
recognized in the Consolidated Statement of Financial Position
was immaterial.
NOTEN.
TA XES
($ inmillions)
For the year ended December 31: 2015 2014 2013
Income from continuing operations
before income taxes
U.S. operations $ 5,915 $ 7,509 $ 7,577
Non-U.S. operations 10,030 12,477 12,667
Total income from
continuing operations
before income taxes $15,945 $19,986 $20,244