IBM 1997 Annual Report Download - page 57

notes to consolidated financial statements
International Business Machines Corporation
and Subsidiary Companies
Cash Equivalents
All highly liquid investments with a maturity of three
months or less at date of purchase are carried at fair
value and considered to be cash equivalents.
Inventories
Raw materials, work in process and finished goods are
stated at the lower of average cost or market.
Depreciation
Plant, rental machines and other property are carried at
cost, and depreciated over their estimated useful lives
using the straight-line method.
Software
Costs related to the conceptual formulation and design
of licensed programs are expensed as research and
development. Costs incurred subsequent to establish-
ment of technological feasibility to produce the finished
product are capitalized. The annual amortization of the
capitalized amounts is the greater of the amount
computed based on the estimated revenue distribution
over the products’ revenue-producing lives, or the
straight-line method, and is applied over periods ranging
up to four years. Periodic reviews are performed
to ensure that unamortized program costs remain
recoverable from future revenue. Costs to support or
service licensed programs are charged against income
as incurred, or when related revenue is recognized,
whichever occurs first.
Retirement Plans and Nonpension Postretirement Benefits
Current service costs of retirement plans and post-
retirement healthcare and life insurance benefits are
accrued in the period. Prior service costs resulting from
amendments to the plans are amortized over the average
remaining service period of employees expected to
receive benefits.
Goodwill
Goodwill is charged to earnings on a straight-line basis
over the periods estimated to be benefited, generally not
exceeding five years.
Common Stock
Common stock refers to the $.50 par value capital stock
as designated in the company’s Certificate of Incorporation.
BAccounting Changes
The company implemented new accounting standards
in 1997, 1996 and 1995. None of these standards had a
material effect on the financial position or results of
operations of the company.
In December 1997, the company implemented SFAS 128,
“Earnings Per Share” (EPS). This standard prescribes the
methods for calculating basic and diluted EPS and
requires dual presentation of these amounts on the face
of the earnings statement. All EPS amounts are calculated
in accordance with SFAS 128; no restatement of EPS, for
either basic or diluted, was required for amounts reported
previously in the company’s filings with the U.S. Securities
and Exchange Commission.
Effective January 1, 1997, the company implemented
SFAS 125, “Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities.” This
standard provides accounting and reporting standards
for transfers and servicing of financial assets and
extinguishments of liabilities. The company was generally
in compliance with this standard prior to adoption.
In 1996, the company adopted the American Institute
of Certified Public Accountants Statement of Position
(SOP) 96-1, “Environmental Remediation Liabilities.”
This SOP provides guidance on the recognition,
measurement, display and disclosure of environmental
remediation liabilities. See note L, “Other Liabilities and
Environmental,” on page 61 for further information. The
company was generally in compliance with this standard
prior to adoption.
In 1996, the company implemented the disclosure-only
provisions of SFAS 123, “Accounting for Stock-Based
Compensation.” See note T, “Stock-Based Compensation
Plans,” on pages 68 through 70 for further information.
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