IBM annual report to include disclosure and changes

NEW YORK: IBM Corp. on Friday said it would modify its accounting methods in

its 2001 annual report as investors stung by the collapse of energy company

Enron Corp. turn an increasingly critical eye on the No. 1 computer maker.

Armonk, NY-based IBM first said on Feb. 18 it would disclose more financial

information after being criticized for a lack of disclosure surrounding the sale

of an optics business during the fourth-quarter that added 12 cents to earnings,

enabling the company to meet analyst earnings estimate

IBM shares, which were already up on a positive Wall Street research report

in the morning, rose on the news and ended the day up 5 per cent at $103.02 in

New York Stock Exchange trading, erasing half of the stock's loss in the past

two weeks. The Dow Jones Industrial Average was up 2.6 per cent on Friday.

After gaining 42 per cent in 2001, IBM shares have fallen 11 per cent this

year as investors worry about when the computer services and hardware company's

revenue, which has slowed more than its earnings, will grow.

IBM on Friday said that in the annual report due out March 11 it will shift

two items -- gains and losses from foreign currency exchanges and real estate

activity -- out of its operating expense line, called selling, general and

administration expenses, or SG&A.

Critics say IBM includes too many items not directly related to the company's

core business in that operating expense line, making it difficult to determine

its performance. For instance, analysts said that the optics business sale in

the fourth-quarter should not have been included in operating income.

Removing gains or losses on real estate or currency transactions will answer

some, but not all of Wall Street's concerns, one accounting professor said.

"Pulling them out of SG&A probably makes that SG&A line more

pure. Now whether or not it totally solves the criticisms, that really would be

a function of well what are they still putting in SG&A," said Joseph

Carcello, an accounting professor at the University of Tennessee's College of

Business Administration.

IBM is one of many blue-chip companies like General Electric Co. that have

fallen under increased scrutiny in recent months as investors who watched Enron

collapse because of problems related to accounting have begun asking for more

information.

IBM said that it would begin breaking out intellectual property and custom

development income separately on the income statement and include addition

information on the related sales.

It also said that its retirement related benefits section will include the

combined impact of all retirement-related benefit plans, such as its pension

plan. Gains or losses from IBM's pension plan, which is currently overfunded,

contribute to the company's bottom line.

In addition, the company said the report will include more information on the

company's capital structure and that its consolidated financial statement will

include information on real estate, accounts receivable, workforce related

charges and write-downs on equity investments.

"I think what IBM is saying is that the world has changed,"

Carcello said.