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Pastimes : The Justa & Lars Honors Bob Brinker Investment Club -- Ignore unavailable to you. Want to Upgrade?

To: Boca_PETE who wrote (10012)	11/24/1999 1:54:00 PM
From: Investor2	Read Replies (2) \| Respond to of 15132

Hi Pete. Speaking of accounting practices, what do you think about IBM's? Sometimes it seems that companies artificially increase their operating results by writing too much off in special charges. IBM's approach prevents that. "IBM Accounting Criticized; Shares Drop Click on our sponsors! Updated 10:44 AM ET November 24, 1999 Current quotes (delayed 20 mins.) IBM 101 15/16 -4 3/32 (-3.86%) By Eric Auchard NEW YORK (Reuters) - International Business Machines Corp. (IBM.N) shares fell more than $4 on Wednesday after a report criticized the computer maker's accounting practices. But some Wall Street analysts said the issue was not how the company does its math, but simply how IBM presents its results, by keeping one-time gains and charges in operating results instead of breaking out these as non-operating items. IBM dropped to 102, down 4-1/8 from Tuesday's closing price on the New York Stock Exchange. A report in Wednesday's Wall Street Journal quoted forensic accounting expert Howard Schilit of the Center for Financial Research and Analysis in Rockville, Md., questioning what the article said were IBM's "unusual treatment of one-time gains." But Gary Helmig, a financial analyst with brokerage SoundView Technology Group, who was also cited as a critical of the practices in the Journal article, said IBM provides analysts with the data necessary for a complete picture. "This is not an accounting issue," Helmig told Reuters. "This is a financial reporting issue," he said. "IBM makes it very visible as to what these charges were," Helmig said, even if the company makes analysts earn their often-seven digit salaries by making them run their own calculations of such one-time events on operating results. "They give you enough information to put together a pro forma (income statement) as to what it would look like without those charges and gains," he said. Schilit was not immediately available to comment on his findings. But an analyst at his research firm confirmed that he had issued a report that showed how IBM's third-quarter results would be lower after backing out one-time gains. Helmig said that while IBM's financial presentation practices could be simpler, they have proved consistent over the years, even when it portrayed the company's operating results unfavorably. Specifically, IBM has reported restructuring charges in operating results, cutting into bottom-line profits, he noted. For while the roughly $4 billion in gains from the sale of the IBM Global Network boosted results in the third quarter of 1999, Helmig noted that restructuring write-downs taken in early 1998 had depressed reported results, leading to a stock decline at the time. An IBM spokesman was not immediately available to comment on its financial reporting policies. Helmig said he had asked IBM's investor relations chief Hervey Parke to break out the one-time items more clearly in their financial reports. He said Parke told him IBM was strictly conforming to Financial Accounting Standards Board (FASB) and Securities and Exchange Commission guidelines by categorizing these events as "selling, general and administrative" expense and not "other income." The analyst said IBM's reading of accounting policy is that regulators frown on the common corporate practice of pro forma presentation of results that exclude such gains and charges. "IBM is taking the position they won't back the numbers out," Helmig said. "That means the individual investor that maybe doesn't get into the level of detail analysts do may not understand what's really going on," he said. IBM believes it is providing footnotes that detail such charges and gains, allowing investors to calculate the impact of such one-time events on operating results, Helmig said. "As they interpret FASB and SEC guidelines, it's okay to show the numbers but they should never do the (pro forma) arithmetic," the analyst said. IBM's unusual practice is also out of step with the methods used by First Call/Thomson Financial, which surveys brokerage earnings estimates in order to manufacture the consensus "expectations" Wall Street uses to measure a company's quarterly financial performance. First Call asks analysts to back out non-operating charges and gains from their estimates. By including such one-time charges and gains, IBM muddles efforts to compare the company's reported results with Wall Street's consensus estimates, Helmig said. Ideally, he said IBM could back out both one-time gains and charges in a supplementary table to give investors a better understanding of its business and a more straightforward comparison of quarter-to-quarter performance."