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

To: BostonView who wrote (2851)	8/3/1998 4:13:00 PM
From: rupert1	Read Replies (2) \| Respond to of 5232

BostonView: Comforting, thanks. Any thoughts on this message lifted from the Yahoo thread. people are looking for some hidden booby trap. This accounting stuff is mumbo jumbo to me. __Victor___________________ More Financial Pain Coming? (long!) CaptainTX (38/M/Somewhere, TX) Aug 3 1998 2:11PM EDT As if the last couple of weeks have not been bad enough for CA, listen to this: A new accounting policy is forcing a fundamental tightening in the way that software companies count their revenues. The policy, called SOP (Statement of Position) 97-2, outlines criteria for when a sale is a sale and when product has been delivered. It also plugs loopholes that have enabled some vendors to pad sales figures. In certain cases, SOP 97-2 forbids or curtails instant revenue recognition from multiyear deals -- a common practice among many database and ERP (enterprise resource planning) vendors. It also forces companies to specify revenues from individual components of bundled software deals. All of these changes may delay revenue recognition for months or years, according to accounting experts. [This rule will be disastrous for CA, which never specifies revenue components, claims significant Unicenter dollars in every mainframe wrap & roll, and always takes revenue in year 1 for multi-year deals.] Effects of SOP 97-2, which was promulgated by the American Institute of Certified Public Accountants and effectively has the force of law, are already being reflected in sales from enterprise software developers such as Baan Co., which in April said (http://bvw.baan.com/press/content_tagged/financialPR.htm) it had deferred $43 million in first-quarter revenue because of uncertainty over how to implement the new standard. Without the deferral, Baan's revenues would have totaled $219 million. But effects are not yet clear and vary widely depending on vendors' past practices and interpretation. In some cases, the standard may alter the structure of deals that vendors offer. Experts agree that the rule brings a healthy dose of reality to vendors whose exuberance was sometimes inaccurately reflected on the bottom line. "The software industry has been very aggressive from the standpoint of selling futures and, over time, got more and more aggressive and stepped over the line," said Fin Most, a national accounting director at Ernst & Young LLP, in San Jose, CA. Let's see: CA's long time CFO Pete Schwartz is gone. CA is offering 10 year maintenance "wrap-and-rolls" now. They recognize all revenue for multi-year deals in year one. (This is exactly what this new accounting practice is designed to prevent. ) Well combine SOP 97-2 with Y2K issues and the lack of adequate planned contingent liability reserves and you get a very gloomy financial picture. One of the attractions in maintenance wrap-and-rolls is that people can't get out of them when they want to. However one of the most basic terms in any contract (and it doesn't need to be actually written into a contract) is that the product is fit for the task. With CA putting so little liability in their books to actually deliver the maintenance and support for the hundreds of products they support (see latest Annual Report) it means when the s**t hits the fan on Jan 1 2000 there aren't likely to be enough people to support the products. (Another good reason to buy a service company?). At this point companies may drop CA products invoking the implicit clause that a product must work. The argument that CA too-often gives that they weren't given enough time to fix the problem won't wash in this time critical period. So CA will have booked revenue for products that they will lose the revenue stream for. Result: huge write downs, losses, insolvency? Question assets indeed, but look at the crippling effect that SOP 97-2 will have on this company especially.