updated 6/28/2005 8:20:55 AM ET 2005-06-28T12:20:55

IBM Corp. announced after the bell on Monday that the Securities and Exchange Commission is investigating how the company disclosed its methods for expensing exployee stock options in the first quarter. The technology giant described the investigation as informal and said it was cooperating with regulators.

When IBM released its first-quarter earnings on April 14 _ three days earlier than expected _ it said employee stock options cut into earnings by 10 cents per share. The consensus analysts' estimate was 14 cents a share.

The 14-cent figure had emerged in a chart that Chief Financial Officer Mark Loughridge put out during an April 5 conference call, when he disclosed what options costs would have been in the year-ago quarter had IBM been expensing stock compensation at the time. He indicated that the then-current quarter's results would be similar.

Some analysts complained that IBM led them to believe the options-expensing costs would be higher so as to cushion the disappointing results IBM ended up posting. IBM's first-quarter earnings amounted to 84 cents per share in the quarter, well short of the 90 cents per share analysts had been expecting.

When asked if the company had intentionally misled analysts in order to soften the impact of the relatively weak quarterly earnings, IBM spokesman Ed Barbini would not comment, other than to say that Loughridge had been clear that stock-option expenses would be lower in 2005 than in 2004.

Shares of International Business Machines Corp. fell 13 cents Monday to close at $73.88 on the New York Stock Exchange, and were down 42 cents at $73.46 in Tuesday premarket activity.

Copyright 2005 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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