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Last updated: September 30, 2004 12:01 am
International Business Machines will take a $320m charge against earnings in its current quarter following the partial settlement of a class action lawsuit relating to its pension plan.
The deal also caps IBM's further potential liability at $1.4bn, removing a significant uncertainty over the financial outlook for the company.
However, IBM said that it would continue to appeal last year's ruling by the District Court of Southern Illinois that the 'cash balance' portion of its pension plan discriminated against older employees.
?We believe that we are likely to be successful on appeal. But we felt it was in the best interests of our shareholders and the business to reduce our financial risk relating to these claims,? said Jesse Green, IBM's Treasurer.
If the Court of Appeals finds in favour of the company, the $1.4bn will not be paid. The case should be concluded within the next two years.
The lawsuit stem from a series of changes made by IBM to its pension plan in the 1990s.
Earlier this month, the company reached a $20m settlement with with one small class of former employees. Under the latest deal, IBM will pay $300m in incremental pension benefits to a second class.
Mr Green said that remaining $1.4bn potential liability would not be charged against earnings. US accounting rules asks companies not to charge potential liabilities unless they are likely to be paid.
The outcome of the appeal has implications for the approximately 1,200 cash balance pension plans run by other US employers.
If such schemes are found to discriminate against older workers, companies could be forced to pump billions of dollars into their pension schemes to covered increased liabilities.
IBM had $8.2bn of cash on its balance sheet at the end of the last quarter and zero net debt excluding its computer financing business. Mr Green said then company would decide at the end of the year whether it needs to make additional contributions to its pension fund as a rsult of the settlement.
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