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Technology Stocks : IFMX - Investment Discussion -- Ignore unavailable to you. Want to Upgrade?

To: H. Wai who wrote (10927)	5/22/1998 1:31:00 PM
From: @jim	Respond to of 14631

>>>IM versus reseller revenue recognition. First, I understand there was a difference in the two restatements. But no, I don't know from an accounting perspective the difference in how revenue from these two types of sales should be recognized. But I would think, IMHO, that there are pretty set practices for reporting reseller revenue. On the other hand, IM, may be very different. This is like an OEM deal to embed one product within another. These type of deals are big and long-term with very big customers and long contracts. If I landed such a contract I would view it much differently than my reseller revenue stream. In fact, such a deal could include up front advances, royalties and all kinds of perculating revenue pieces. Once such a deal is inked, then the accountants come in to review it. This may take several weeks by the accountants. Meanwhile, the CFO has to be moving toward end of Q numbers for reporting, without necessarily knowing what the accountants opinions will be. I think management conservatively looked at the OEM deal one way, perhaps based on their experience with hardware OEM deals (3COM), and reported it that way. And were then surprised that E&Y decided it should be reported differently after the fact. Again, E&Y should have given management a heads up. (Now I'm not clear when this IM revenue happened. If this is left over from last Sept......E&Y should have flagged it then. If it is from a deal in the last 2 quarters, they still had to review it and report to Bob. They should have flagged it before Q2 results.) Infomix is NOT, IMHO, taking a long time to notice problems. In fact, their record is just the opposite. For example, if you were publically reporting fiscal decisions and business decisions, once you noticed a problem you'd have to find consensus of opinion among your top executives (1week of time), send it to your outside consultants E&Y & legal(1-2 weeks), regroup with management to review outside counsel (2-3 days) and make a decision (2-3 days), prepare a public report (1-2 days) and report it. So noticing and reporting a problem in a 3-4 week time frame to the public is very timely. On the other hand, delaying to report a fundamental problem for 60-90 days is a real problem. But that's not what is happening with our new management. Just my thoughts, @jim

To: H. Wai who wrote (10927)	5/22/1998 1:33:00 PM
From: Mark Finger	Read Replies (2) \| Respond to of 14631

>>The last restatement especially concerned the revenue of product >>sold to resellers. Do you think Informix should have noticed this >>problem (product sold to IM) when they restated the revenue last >>time? Why does it take informix so long to notice the problem? There is a little fact that has not been stated recently. When IFMX restated, they went to a NEW set of accounting rules that were just released in 1997 for recognizing revenue. IFMX is only going to have a few accountants that can follow. It is really the responsibility of the outside accounting firm to educate and properly guide the change to the new accounting rules. My contention is that E&Y failed to properly explain the rules and provide the guidelines for classifying customers into the proper categories. E&Y did not provide proper guidelines and examples of how to classify. Since these rules are new, the experts must be held responsible because they must both teach and approve. Do not let them off the hook. As for Mr. F., he did a lot of diligence during the restatement, because he had 2 firms doing the work. E&Y to do the primary work and a second one (Peat, Marwick???) to look over the shoulders of E&Y. At least that is how I am interpreting some of the public statements from last summer. I fail to see how Mr. F. could have done more on this, especially when implementing just recently issued version of GAAP (or whatever is the proper set of initials). You have to rely on the guidance of experts, and the Big 5 (at the moment) are supposed to be the experts in this area. He got 2 of them to give advice. Mark

To: H. Wai who wrote (10927)	5/22/1998 4:05:00 PM
From: Robert Graham	Read Replies (3) \| Respond to of 14631

Are some here suggesting that Informix is not in the position to take full responsibility for the books that they are entrusted to maintain? I would never want to be a shareholder of a company that was not in the position to take full responsibility of their book work. Informix is not a "green" company headed by "green" management that is expected to need their hands held when it comes to accounting and in particular the application of revenue recognition practices which they took a major part in creating in the first place. We are talking about adults here that are professionals that I imagine have been professionals for some period of time now. The books play an essential role in Informix's relationship to their creditors, shareholders, and implicitly with respect to their customer. If the shareholder or creditor cannot trust the book work of the company, then how are these two groups to make their informed decision with regards to the risk and profitability of this company? The company should never give this responsibility to someone else outside of the company. I think this is an elementary observation I am making here. If E&Y is "guilty" for the bad book work including this last quarter, then Informix's association of E&Y proves this assertion of mine. Regardless as to who is at fault, this sort of problem can in a big way damage this company's ability to effect a turn around. IMO without being able to procure credit outside of the refinancing of their A/R, there will be no turnaround and no future for this company. Credibility is one core ingredient of this turnaround effort. Here we have a company that took the responsibility of creating new revenue recognition practices as an outcome of an apparent history of "creative" book work. Now they do not want to take the responsibility of following through with this plan, a plan that can make or break their future? This is very odd indeed! There was no one in management or the accounting department at Informix could apply the simple concept behind the new accounting rules that were to be implemented? No one at Informix questioned the revenue associated with industrial manufacturers, another name for a reseller, following the CEO's pronouncements after the huge and publicly visible task of the restatements were finished? How come I am no accountant with an almost nonexistent accounting background, and I understand the difference? What does this mean? I do not think this event can be entirely, or even for the most part, blamed on E&Y. Heck, if E&Y never came to Informix with the news that lead to last quarter's restatement, Informix would of never known about this improper booking of revenue. I also do not think Bob F is trying to get away with anything illegal or improper here. So the breakdown occurred between the busy Bob F and someone in the accounting department. Who is between these two individuals whose responsibility is the books of Informix? The V.P. of Accounting or its equivalent. Or let present this observation another way. Who does E&Y, the one "blamed" for this yet another snaffu, report directly to at Informix? The V.P. of Accounting has this responsiblity. Remember the relationship with E&Y continued to exist after the restatement. E&Y was the present and the responsible auditor during the periods that were restated. What "benefit of the doubt" is there to give E&Y? What consideration could Bob F afford to give E&Y in this kind of situation? He named then in a lawsuit as earlly as July of last year. How wise is it to continue to employ a company that you are making responsible for the book work that needed to be restated who you have named in a lawsuit regarding this breach of responsibility? I think Bob F made a serious mistake here, and it comes down to the management of his company. I do understand that he has a "full plate"., but this is the nature of turnarounds. If he is not in the position to take this repsonsibility, than who is at his company? Who will take on this responsibility, such as the book work, of their own volition? I guess this depends on who he has hired in and retained for the management of the company. Ultimately this burden rests squarely on Bob F's shoulders, and not some "outsider" of the company who has no vested interesst in the company's future. Essentially, Informix is sending their sharehold, creditor, and their customer over to E&Y for an explaination. This seems a bit out of place to me and improper. The excuses and handling of this matter remind me of "small time operators" who have taken on much more responsibility than they can handle. I am not saying Bob F is one of these "small time operators", but he certainly in some respects is starting to look this way to me, which is an image he cannot afford to have. I do believe Bob F and his team can do be better job than this. Perhaps this CEO has taken on much more than he has anticipated or was even prepared to handle. So I think the CEO needs to reevaluate his position with respect to Informix, and in the process reevaluate other key management inividuals and their relationship with Informix. This restatement of what is turning out to be a series of restatements of this company's earnings is simply something that must not of happened, but it did. And this new restatement will lead to the predictable consequences for the comapny and its shareholder. Sure the independent auditor made significant mistakes over their history with Informix, and they should be canned. However, I think this situation can be related back to someone at Informix who dropped the ball on this one. Now losses have been reported in place of a profit. Remember that i Informix does not report an operational profit by the end of this quarter and meet other financial requirements, they lose their "Credit Facility" which is the only short term financing thay have available to them. Comments and feedback welcome. Bob Graham

To: H. Wai who wrote (10927)	5/23/1998 8:15:00 PM
From: Austin	Read Replies (1) \| Respond to of 14631

Regarding your statement: "The restatement this time concerned the revenue recognision of Informix products sold to IM(industrial manufacturer). The last restatement especially concerned the revenue of product sold to resellers. Do you think Informix should have noticed this problem (product sold to IM) when they restated the revenue last time? Why does it take informix so long to notice the problem?" As I mentioned previously, Informix has been doing IM business for years and years. IM's are also "resellers" because they resell Informix embedded (in the IM's products, usually hardware) to end users. For example, Motorola or Northern Telecom embedding Informix into switches. If E&Y wanted Informix to change the way they have been declaring revenue for IM business, they have had every opportunity during the past year to recommend changes to Informix. Obviously they didn't, until after Q1 '98. E&Y is supposed to be the "outside expert" for Informix in regard to revenue recognition and related policies. Again, IMHO, they screwed up big time. If they had a problem with IM revenue declaration, why didn't they tell Informix during the past 12 months ??