IBM 1997 Annual Report Download - page 66

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64
notes to consolidated financial statements
International Business Machines Corporation
and Subsidiary Companies
A reconciliation of the company’s effective tax rate to the statutory U.S. federal tax rate is as follows:
For the year ended December 31: 1997 1996 1995
Statutory rate 35% 35% 35%
Foreign tax differential (3) 2 2
State and local 111
U.S. valuation allowance – (6) (2)
Other –32
______________ ______________ ______________
Effective rate before purchased in-process
research and development 33 35 38
Purchased in-process research and development – 2 9
______________ ______________ ______________
Effective rate 33% 37% 47%
For tax return purposes, the company has available tax
credit carryforwards of approximately $2,035 million, of
which $1,092 million have an indefinite carryforward
period, $431 million expire in 1999 and the remainder
thereafter. The company also has state and local and
foreign tax loss carryforwards, the tax effect of which is
$405 million. Most of these carryforwards are available for
15 years or have an indefinite carryforward period.
Undistributed earnings of non-U.S. subsidiaries includ-
ed in consolidated retained earnings amounted to
$12,511 million at December 31, 1997, $12,111 million at
December 31, 1996, and $12,565 million at December 31,
1995. These earnings, which reflect full provision for non-
U.S. income taxes, are indefinitely reinvested in non-U.S.
operations or will be remitted substantially free of
additional tax.
O Selling and Advertising
Selling and advertising expense is charged against
income as incurred. Advertising expense, which includes
media, agency and promotional expenses, amounted to
$1,708 million, $1,569 million and $1,315 million in 1997,
1996 and 1995, respectively.
P Research, Development and Engineering
Research, development and engineering expense
amounted to $4,877 million in 1997, $4,654 million in 1996
and $4,170 million in 1995. Expenditures for product-
related engineering included in these amounts were
$570 million, $720 million and $783 million in 1997, 1996
and 1995, respectively.
Expenditures of $4,307 million in 1997, $3,934 million in
1996 and $3,387 million in 1995 were made for research
and development activities covering basic scientific
research and the application of scientific advances to
the development of new and improved products and their
uses. Of these amounts, software-related activities were
$2,016 million, $1,726 million and $1,157 million in 1997,
1996 and 1995, respectively.
Purchased in-process research and development
expense was $435 million and $1,840 million for 1996
and 1995, respectively.