Big Blue stock drops after reporting practices slammed

IBM shares lost $4.125 at one point yesterday, and closed down $1.5625, following a report quoting the forensic accounting expert Howard Schilit of the Centre for Financial Research and Analysis in Rockville, Maryland, who criticised Big Blur's treatment of one-time gains in its accounts. Schilit had issued a report suggesting that IBM's Q3 results would be lower after one-time gains were taken into consideration. IBM disposed of its Global Network for $4 billion in Q3, which boosted income, but associated restructuring write-downs were included in earlier quarters. The contentious issue concerns financial reporting practice rather than accounting. IBM includes the one-time gains in earnings, and has done so since 1994. In addition, restructuring charges are reported in the operating results, which reduces profits (and tax of course). IBM's investor relations chief, Hervey Parke, said that IBM conformed to the Financial Accounting Standards Board and SEC guidelines. It seems that First Call/Thomson Financial asks brokerages to exclude non-operating charges from their estimates, from which the consensus is calculated, so IBM's reporting methods may require a little more arithmetic from the financial analysts. When IBM reported its Q3 last month, the headline news was a profits warning, with Lou Gerstner putting the blame on Y2K. Earnings were said to be in line with expectations. ®