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Technology Stocks : IBM -- Ignore unavailable to you. Want to Upgrade?

To: Arrow Hd. who wrote (7439)	2/16/2002 7:30:12 PM
From: Scott Bergquist	Read Replies (1) \| Respond to of 8218

Perhaps the following explanation from Bill Fleckenstein's Feb 15th letter will clarify what the "big deal" is.... Note SEC violation: "Gangrenous Profits Reattached In IBM Operating Room: There are a couple of points in the article that I think are somewhat shocking. The net of the story is that late in the quarter, IBM made a sale to JDS Uniphase that they disclosed only in one small comment on their very long conference call. This took the form of the following passing reference: "Our intellectual property income and licensing royalties were flat in the quarter, which included the sale of our optical transceiver business to JDS Uniphase." That was the only mention of it, no press releases, no anything. (JDS Uniphase issued a couple of press releases about it.) The amazing thing is that IBM used this money to reduce SG&A rather than citing it as other income. In this way, it makes their expenses and their ongoing operations look different than they actually are. " "Those of us who follow the company closely have been suspicious that this may have been going on for some time and I guess we'll have to see if that's the case or not. Obviously, with a lot of these companies that gathered suspicion, you as an outsider can never really know for sure. As I have said repeatedly, there have been so many warning signs about IBM that you don't have to be a gigantic cynic to suspect the worst. In any case, last quarter, after falling a billion dollars light in revenue, it looks like the way IBM made the number was by making the barely disclosed sale of a business, if you want to call what they did real disclosure. That potentially could have added 12 cents to their earnings and helps explain how they can miss by a billion in revenues and beat their earnings expectation by a penny." "(W)hat IBM did appears to be in clear violation of SEC Staff Bulletin 101. Lynn Turner, formerly chief accountant at the SEC, told The Times that the ruling "is very clear that gains from the sale of assets have to be in the 'other income' line." I cannot see how IBM is not in clear violation of the SEC rules, and if so, how they will be able to avoid a large earnings restatement, assuming this story gets the coverage that I expect it to. Of course, IBM claims its practice is okay, because "Our auditors have reviewed it and approved it." Now, where have I heard that before?? (I might also note that the dead fish community did itself proud defending IBM, while citing exactly what the IR department at IBM told them, since none of them had a clue what really happened.)"