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

To: Charles Tutt who wrote (7454)	2/23/2002 11:02:02 PM
From: Just_Observing	Read Replies (2) \| Respond to of 8218

Charles, IBM has used this technique before according to the Motley Fool FOOL ON THE HILL IBM's Accounting Tricks Last week, The New York Times highlighted yet another one of IBM's accounting shenanigans -- one the company has used in the past, to an even greater degree. Whitney Tilson takes a closer look and says the company's stock is likely to suffer after the full extent of these tricks comes to light. By Whitney Tilson February 20, 2002 Kudos to Gretchen Morgenson of The New York Times for flagging IBM's (NYSE: IBM) latest accounting shenanigan. In her column (free subscription required) last Friday, she examined IBM's sale of its optical transceiver business to JDS Uniphase (Nasdaq: JDSU) for $340 million on the last day of last quarter. A few weeks later, when IBM reported its fourth-quarter earnings -- which beat Wall Street estimates by a penny per share (of course), despite a big miss on the top line -- "there was no disclosure about the amount generated by the sale or the company's accounting of it." Morgenson revealed why: IBM used the net proceeds from this sale, $300 million, to lower its operating costs, rather than accounting for it as a nonrecurring one-time gain. While $300 million might not sound like much for a company that had almost $86 billion in revenues last year, Morgenson notes that "by using that gain to offset its expenses, and taking into account the company's tax rate, the sale could have bolstered the company's earnings by as much as 12 cents a share, according to a technology analyst. Such a gain would have represented 9 percent of IBM's per-share earnings in the fourth quarter." Imagine the stock market's reaction had IBM reported earnings that missed consensus analysts' estimates by 11 cents per share! More: Regardless of whether IBM's accounting in this matter complies with Generally Accepted Accounting Principles, there's no question that it's aggressive, which is especially troubling in this post-Enron world. What could IBM have been thinking? Here's one guess: "We did it on a much larger scale in 1999 and no-one seemed to notice, so why not do it again?" You see, this isn't the first time IBM has engaged in this type of creative accounting. A careful analysis of IBM's 1999 10-K reveals that the company used at least $1.6 billion of the $5 billion generated by the sale of its Global Network business in a similar fashion. IBM's accounting for its 1999 sale of its Global Network business Deep in its 1999 10-K, IBM reported that "In December 1998, the company announced that it would sell its Global Network business to AT&T. During 1999, the company completed the sale to AT&T for $4,991 million.... The company recognized a pre-tax gain of $4,057 million ($2,495 million after tax, or $1.33 per diluted common share)." That's a lot of money! Normally, one would expect such a sale to be treated as a nonrecurring one-time gain, but this line item is nowhere to be found in IBM's 1999 statement of earnings (from the 10-K): motleyfool.com