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1/12/2006
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SEC Opens Formal Probe Into IBM Earnings

The Securities and Exchange Commission is investigating the tech giant's disclosures relating to its first-quarter 2005 earnings and expensing of stock options.

IBM on Thursday said the Securities and Exchange Commission has opened a formal investigation of the tech giant's disclosures relating to its first-quarter 2005 earnings and expensing of stock options.

In a short statement, the Armonk, N.Y., company said it has been told by the SEC "that the investigation should not be construed as an indication that any violations of law have occurred."

IBM said it has been cooperating with the SEC since the beginning of an informal investigation into the matter. The informal probe was disclosed by IBM in June 2005.

At that time, IBM said the federal agency was looking at how the company disclosed information about its plan to treat stock options as an expense on its first-quarter income statement.

Before the April 26 earnings report, IBM had suggested to Wall Street analysts that stock-option expenses would reduce earnings by about 14 cents a share. When the actual number turned out to be only 10 cents a share, a number of analysts complained that they were misled into publishing a low estimate.

As a result of disclosing the higher number, IBM fell 7 percent short of revised estimates of 90 cents per share, as opposed to 12 percent, if analysts had used the true stock-options expense of 10 cents a share.

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