Victor, these "charges" will turn out to be bogus just as every Federal Government investigation, including the Consent Decree, and all the anti-trust litigation turned out to be bogus.
IBM's revenue recognition practices are the most conservative in the IT industry. Since it appears the customer in question was a retailer probably using IBM point of sale terminals, let me explain how hardware revenue recognition works.
--When the hardware exits final test it is packaged for shipment and accounting prepares to transfer title upon the shipment of the equipment from the IBM factory. A UCC1 is filed and a lien is placed against the equipment until it is installed and paid for.
--When the shipment takes place the revenue recognition process starts and is finalized upon the physical installation of the equipment and the acceptance by the customer. This is especially critical at quarter end and the end of the year. If it is not physically installed at those times revenue recognition is not taken and even with that conservative approach there still may be some revenue debits put up against the quarter/year-end books to account for any disputes, complaints, bad debts, etc. that would require a reversal so that the reversal never has to involve a restatement because there is a debit account to cover this contingency.
--If the shipment does not result in an installation, correct payment, bad check, insufficient funds, bankruptcy prior to payments, etc. the lien covers IBM to allow it to recover the equipment either in-transit or from the customer site. The transaction is at fair market value whereas the true IBM exposure is at the cost/expense of the bill of materials fully apportioned with SG&A and engineering apportionments such as DE and ME.
Starting to get the picture Victor? Not only are there no crooks there but it is about as clean as it gets in a manufacturing environment. |
