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Technology Stocks : Computer Associates
CA 25.10+0.1%Nov 21 4:00 PM EST
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To: rupert1 who wrote (2852)8/3/1998 5:48:00 PM
From: The Rancher  Read Replies (2) of 5232
 
SOP 97-2 was designed to "insulate" software companies from customers defaulting on multiyear agreements. given that most s/w companies are small, FASB feels that the conservative nature of SOP 97-2 is in the best interests of small companies that can't afford to have a customer default on a multiyear deal. thus far, some companies have seen their stock hit because of resulting revenue reclassifications. but the bottom line is that 97-2 just extends the pipeline (in most cases) because the contract is still in place, the revenue will (in most cases) still come in, and everything will be fine and dandy. except there is a loophole...

the little known loophole in 97-2 is that if you are a large s/w company that has been recognizing multiyear deal revenue up front (sound familiar?) and HAVE A PROVEN TRACK RECORD OF CUSTOMERS PAYING ON SCHEDULE (ie not defaulting), you may continue to operate under that scheme. very few companies fit this description, except of course, CA. therefore the company can continue to recognize these large deals up front, so SOP 97-2 should not be an issue for CA.
however, as we all know, the problem for CA is that customers do not want to make these large deals anymore (at least some of them don't) according to the company.

-ranch it up
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