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To: Jim Court who wrote (9693)	2/23/1998 11:48:00 PM
From: Robert Graham	Read Replies (3) \| Respond to of 14631

Yes, what you are saying here makes sense to me. Still, Informix's financials can turn for the worse in their current situation if a short term solution is not found in Bob F's turnaround efforts. Correct? So even though their may be a "hedge" involved, all it has done is "bought" Bob F time to show more solidly improving earnings (and revenue). Some here think I have stated that Bob F is "cooking the books". This is not true. However, I have said that Bob F. is taking advantage of the opportunities afforded to him with the financials of the company like the restatement of earnings in order to facilitate higher reported earnings in the following quarters, like this last quarter. He would be a fool otherwise, for it is difficult enough to engineer a turnaround without the books and time along with it going against you. His aggressively pursuit of the earnings restatement would tell me that he knew what he was doing in this regard. This operating in that grey area afforded by GAAP is different than the more blatant "cooking of the books" that for instance Phil and Co performed. I will call this Phil's "magic book work", and I hope he took his "magic wand" with him. All the auditor signoff means is that according to what they have been able to determine through their normal practiced scrutiny of the books, Informix operated within the technical letter of what is specified by GAAP. I have been talking to this CPA who was once an executive at Halliburton, a large oil company, and reported directly to the Treasurer. Since then he opened up his own CPA firm. He appears to be knowledgeable about how financial records can be operated on. I told him about the situation involved with Informix and Bob F's response as a new CEO in relationship to his earnings restatement. He tells me the management of the books by a new CEO in a turnaround situation is (very) common in their attempt to turn positive earnings in a shorter amount of time, for the most part due to book work. When I told him how aggressively Bob F pursued the restatement of earnings, he told me that this guy knew what he is doing in managing the financials of the company in order to help turn a profit on the books more quickly. So at least in this person's mind, the profits we are seeing reported for this quarter was likely to have been facilitated by the earnings restatement efforts performed by Bob F when he hired in as CEO of Informix. I also imagine restructuring charges can be used as a tool in this regard. I will have to ask him about this next time I meet him along with having him fill in more specifics on how this can be done and still conform to GAAP. I am surprised at who I manage to meet. Must be my engaging personality. ;) This is not to say that Bob F is substantially misrepresenting his efforts as much as it is buying him time in a legal way to produce a more substantial turnaround that would continue to generate positive earnings for the company. IMO he is intelligently and aggressively using all the devices available to him to help give him more time to reach his goals in the turnaround of Informix. For instance, correct me if I am wrong since I am no accountant, but I think how costs are written off in the books depends to an extent on the intent of the company in how they plan to manage their outward operating picture with respect to how they go about generating revenue. If the two are inline, then over time how costs are represented in the books will end up portraying the actual financial health of the company. The important factor here with accrual accounting techniques is time. An example of this is goodwill. If goodwill is amortized over a longer 30 year period, then what this is implying to me is that managment is seeing that it will take them that order of time to see positive financial results of that aquisition. However, all too often, goodwill is amortized over 30 years while positive results are produced within just a few years with the goodwill cost well on its way in being offset by profits. So the choice of 30 years may be considered a liberal in this example. Quite a discrepancy which will create overstated earnings. This is all perfectly acceptable in GAAP. How about the booking of A/R that the management understand is unlikely to be paid in a timely fashion because of the liberal credit terms they gave a customer in order to generate additional sales or the sale to a customer with questionable credit worthiness due to relaxed credit standards implemented purposefully by a company. According to GAAP, A/R that is booked has to have a certain timeliness associated with it and likelihood of the customer paying off their account balance has to be great. But how do you define these qualities and ensure the management was actively pursuing this standard? This would be very difficult to do. So this is one of those many "grey areas" that those including the auditors only know of after the fact, when substantial A/R ends up being written off by the company. This is where intent comes into the picture. Accounts will surprise the management of a company by late payment or default. However, if through their intent they are making their best efforts in maintaining the quality of their A/R so that this ballance will be likely paid off in the short term (3 months or less), then booking it as a current asset will be a valid approach that will meet the terms of GAAP. So getting back to Informix, if Bob F can now generate the revenues that his aggressive book work has in effect anticipated, then Informix will end up with financials that portray a reasonably accurate picture of the company's financial health. Keep in mind that the restatement of earnings and the reported restructuring charges related to the layoffs are two separate incidents and relates to the reporting of different quarters. Do any accountants out there have any feedback? Allowing for "Kentucky Windage" on my part, of course. ;) Bob Graham

To: Jim Court who wrote (9693)	2/24/1998 2:18:00 AM
From: Mo Chips	Respond to of 14631

<<I also believe that they've hedged some, possibly with accrued expenses>> I think you have a point. I looked at the balance sheet and for a company that shed a lot of its sales force and took other writeoffs, it is interesting that accrued expenses and other liabilities increased by 47% year over year... But you know that the auditors will scrub it pretty good for reasonability... Have they released the 10-k? That should provide more details. Mo