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Technology Stocks : Compaq -- Ignore unavailable to you. Want to Upgrade?

To: PCSS who wrote (95791)	3/7/2002 1:59:14 PM
From: Elwood P. Dowd	Read Replies (2) \| Respond to of 97611

Compaq, HP investors ignore accounting questions By Caroline Humer NEW YORK, March 7 (Reuters) - Accounting questions may be the latest controversy surrounding the proposed $21 billion merger between computer giants Hewlett-Packard Co. (NYSE:HWP - news) and Compaq Computer Corp. (NYSE:CPQ - news), but investors already weary from a long ordeal said they couldn't care less. ``I don't think the questions about their accounting are terribly serious at this point,'' said Noel DeDora, a portfolio manager at San Francisco's Fremont Investment Advisors. ``I think they are the same kind of questions they are asking a lot of companies.'' Scrutiny of corporate accounting has increased in the months since energy trading company Enron Corp. filed for bankruptcy amid accounting irregularities. Among the loudest critics is UBS Warburg analyst Don Young, who said recently in separate research notes that both companies may have used accounting to boost their fourth-quarter earnings. Hewlett-Packard and Compaq beat analyst earnings estimates in the fourth-quarter of 2001. Young criticized Compaq for switching to a new revenue recognition accounting requirement in the fourth-quarter of 2001 while its competitors didn't, saying it enabled the company to inflate profits. Young also said that HP may have sent its middlemen resellers extra personal computers in the fourth-quarter, a process known as ``stuffing'' the retail sales channel. Both companies denied that their accounting was improper. Hewlett-Packard said on Sept. 3 it would buy Compaq but met with instant resistance that has evolved into a nasty proxy battle with Walter Hewlett, a board member, shareholder and son of one of the company's founders. He and other investors representing a more than 20 percent stake will vote against the plan. The chances of the combination going forward increased earlier this week after a key investment advisory firm recommended the deal, instantly creating about a 10 percent to 12 percent block that will vote for the deal. The companies then got approval from the Federal Trade Commission. BEST-IN-CLASS A Compaq spokesman said that the company's adoption of a new revenue recognition rule known as EITF 01-9, which was disclosed in its annual report filed on Jan. 30, was driven by a requirement of the Financial Accounting Standards Board. ``Compaq is proud of its reputation for full and complete financial disclosures and its best-in-class financial practices. The company's decision to adopt EITF 01-9 in advance of the required adoption date reflects Compaq's commitment to full and transparent financial disclosure,'' he said. The company said during its quarterly earnings conference call on Jan. 16 that the change increased its fourth-quarter profit by $16 million to $92 million compared with a $672 million loss a year-earlier. Hewlett-Packard also denied during its first-quarter earnings call in February that it had increased its PC revenues by building up inventory of PCs at its resellers. Earlier this week Chief Executive Carly Fiorina told investors that Young had calculated inventory using a different system. ``There was no reason to do anything strange, particularly knowing the amount of scrutiny we'd be under,'' she said. Investors from both the anti-merger and pro-merger camps said that the issue is secondary to the shareholder votes on the merger, which are set for March 19 and March 20. ``I don't think people are looking that deeply into the accounting aspects of it in the near-term. This is more from our perspective about product mix and revenue mix,'' said Sunil Reddy, a fund manager at Fifth Third Investment Advisors. Reddy said Fifth Third, which owns more than 700,000 HP shares, intends to vote against the merger. Meanwhile, DeDora, who is in favor of the merger, said that the accounting questions will not play into the vote on the merger. ``I don't think it really is tied to the merger at this point. The merger has become somewhat more of a political issue,'' DeDora said. Other companies under increased scrutiny include International Business Machines Corp. (NYSE:IBM - news), which competes with Hewlett-Packard and Compaq, and conglomerate General Electric Co. (NYSE:GE - news). Compaq shares rose 0.46 percent, or 5 cents, to $11.03 while Hewlett-Packard shares fell 1 percent, or 22 cents to $19.96 in New York Stock Exchange Trading. Email this story - Most-emailed articles - Most-viewed articles