IBM chided for accounting on sale

NEW YORK - IBM Corp. used income from the sale of a business unit to lower its operating costs, giving its fourth quarter 2001 earnings report a rosier glow than it might otherwise have warranted. <br> <br> The move boosted the company&#39;s operating income, which, IBM reported, narrowly beat Wall Street analysts&#39; expectations. At other companies, such sales are often reported as a one-time gain that wouldn&#39;t be reflected in operating income. <br> <br> IBM defended its accounting of the $300 million sale, reported in Friday&#39;s editions of The New York Times, saying the company buys and sells businesses as a normal practice. <br> <br> ``This is not unusual treatment,&#39;&#39; said IBM spokeswoman Carol Makovich. ``We consider these items to be general expenses.&#39;&#39; <br> <br> Makovich stressed that the sale of IBM&#39;s optical transceiver business to telecom equipment manufacturer JDS Uniphase Corp. - announced in a press release on Dec. 19 - had been widely reported, and was briefly mentioned in IBM&#39;s earnings conference on Jan. 17 by IBM Chief Financial Officer John Joyce. <br> <br> But in afternoon trading on the New York Stock Exchange, IBM shares were down nearly 4 percent, or $4.29 a share, at $103.60. <br> <br> Financial and business analysts tended to defend IBM&#39;s reporting of the transaction, saying much of the proceeds were based on intellectual property developed by IBM researchers. <br> <br> ``Although the sale included some production equipment and a few people, the majority of the purchase price could be attributed to intellectual property that IBM developed through its research efforts,&#39;&#39; Merrill Lynch&#39;s Steven Milunovich wrote in an analyst report issued Friday. <br> <br> ``Our only concern would be that the company could have done more to call out the magnitude of the transaction,&#39;&#39; he wrote. <br> <br> IBM earned $1.33 a share in the fourth quarter. The consensus forecast by analysts surveyed by Thomson Financial/First Call was for earnings of $1.32 a share. <br> <br> Milunovich estimated the sale of the optical transceiver business contributed 8 cents per share to IBM&#39;s earnings. <br> <br> He said IBM&#39;s accounting for the sale was consistent with the way it reports licensing royalties, from which it earns more than $1 billion a year. <br> <br> Analysts noted that IBM is a company of 300,000 employees that acts in a manner similar to a large holding company, buying and selling businesses - especially in its enormous IBM Global Services division, which handles outsourcing contracts that consistently involve the purchase or sale of portions of companies. <br> <br> ``If it truly was the sale of an interest in an investment, it should not have been treated as part of operating income,&#39;&#39; said Robert Colson, editor-in-chief of the CPA Journal, a publication of the New York State Society of Certified Public Accountants. ``But when your business is buying and selling companies, the gray areas become grayer.&#39;&#39; <br> <br> Annex Research analyst Bob Djurdjevic, a perennial IBM critic and former IBM employee, has long called for closer scrutiny of IBM&#39;s accounting, especially of its savings in tax and pension expenses. <br> <br> ``I wish Wall Street had always treated IBM to this kind of microscope,&#39;&#39; Djurdjevic said. ``But I wouldn&#39;t be blowing my stack over this transaction. Somebody had to make an accounting judgment call. Either way, it ends up as a profit for IBM.&#39;&#39;