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Technology Stocks : Wind River going up, up, up!
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To: Jerry Asher who wrote (4175)1/30/1999 10:32:00 AM
From: Mark Brophy  Read Replies (2) of 10309
 
See the cover story of Upside magazine.

It's called, "Cooking the Books - Tech Companies Feel the Heat" at upside.com. It makes some interesting comments on the SEC chairman's speech from last September. Levitt sent a letter to 150 tech companies after the speech asking them to clean up their act.

And absolutely nowhere in the chairman's speech does he refer manipulating deferred revenue as a method of "earnings management".

The entire speech was about earnings management, so I disagree with your interpretation.

Would someone describe what it is thought that WIND does in order to defer revenue? And can you attribute these thoughts to management (CEO or CFO) statements?

The CFO has regularly stated at earnings conference calls that it's official company policy to avoid what he calls "hockey stick" revenue and earnings patterns by deferring revenue. He doesn't say exactly how revenue is deferred and nobody has asked because it has been a good thing to smooth out revenue and and avoid stock price volatility. Now, it looks like the policy might be changing, which is why the CFO didn't reach into the cookie jar this quarter to make his numbers.

Note that Wind River also used the "big bath" scam mentioned by the SEC a year ago when they wrote off $10m for an acquisition. If they had properly amortized the cost of the acquisition over several years, reported earnings today would be lower. The Upside article suggests that this is a more heinous accounting sin than reaching into the cookie jar.

The biggest accounting scam that Wind River uses is their refusal to count the cost of stock options as an employee compensation expense in their earnings reports. The SEC passed a new rule last year that forced all companies to report the info on their 10-K, but it only comes out once each year. Last year, the huge amounts of options erased a $0.17 reported profit and replaced it with a $(0.23) loss! This year, it seems likely that the company is profitable, although the 10-K isn't due until April. In any case, the restated profit will be much less than the reported profit of the last 3 quarters and the expected profit this quarter.
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