Debra, keep an eye on Neta at the 54.50 - to 56 area over the next, few weeks. It made its All time high on a one day spike high reversal at 57 in July 98 and has been diverging on the daily and 60 Minute Rsi.
Neta may avail itself to some of the scalps that you do so well and
others may want to consider more of a position trade.
Neta had 5 insiders sold a total of more than 200,000 share on Nov 19th and 20th of this year and Telescan Insider trading page is
stating that they currently have no holdings at all.
especially as they have some accounting questions outstanding,
On a positioning basis if you short a company that may have accounting
problems and the insiders are unloading you can wake up with a
Cendant, OXHP, livent situation on your hands.
this article is a great read if nothing else:
11/20/98 6:30 AM ET
SEC Chairman Arthur Levitt has made quite a stir, as recently as last Monday, by talking tough about the SEC's assault on so-called "cookie jar" accounting. This, according to Levitt, is when companies create bigger-than-needed reserves during the good economic times "so they can reach into them when needed in the bad times" and thereby make it seem like they've got steady sales and earnings growth.
Enter Network Associates (NETA:Nasdaq), a software maker that has been highly criticized by short-sellers for what they claim are aggressive accounting issues related to its high number of back-to-back acquisitions. The entire Network Associates issue was laid out last month by Senior News Editor Kevin Kelleher in TheStreet.com's Cracking the Books report. But with the SEC's attack on "cookie jar" accounting, short-sellers can't help but wonder whether the SEC will start looking at Network Associates.
As San Jose Mercury columnist Adam Lashinsky reported back in September, CEO William Larson used the term "honey pot" during a conference call in September.
Cookie jar? Honey pot?
What was the context of the "honey pot"?
According to a transcript of the conference call prepared by someone on the call-a transcript that has never before been published-the term was used in response to this question from an investor: "It looks like you're probably over reserving for indirect (retail) sales ... if you want to give any clarity on that, that's terrific. And ... it looks like your deferred revenues shot up a lot in the last quarter, so it looks like you were holding back revenue recognition ..."
Larson's response: "You're absolutely right on both counts. We've been extremely conservative and that's how you build little honey pots that you can go to, because when you make these acquisitions in our business planning, we always project a sequential decline in the revenue of the acquired company, and we have to go back to our core business to get faster growth to cover up the potential 10% to 15% decline in revenue. And that's where you see the releasing of backlog and, uh, you know, that kind of thing-you can only do that if you've created, you know, these acorns out there."
Acorns? Acquiring companies whose sales will slide? What's up with that? Sure sounds like honey pots and cookie jars have a lot in common.
But in an interview yesterday Larson insisted they don't, and that the comments he made on the conference call "are being misinterpreted by some individuals out there." He claims he got the term "honey pot" from reading Winnie the Pooh to his six-year-old. It refers to the company's hot products and geographic diversity.
Larson says what he wished he had said was that Network Associates "is a financially disciplined company that is disciplined in its financial planning." He says the planning is required because Network Associates usually expects the revenues of companies it acquires to fall for a quarter or so following the transaction and any dislocation from it.
"You have to honor your commitment [of growth] to Wall Street and not blame a shortfall on the transaction," he says, "So what we do is we rely on our strength of diversity of product line and the strength of our geographic revenue stream, and we make the revenue number by selling other stuff."
Selling other stuff? That's right. According to Larson, when
sales look weak the company dips into its "honey pot" and
searches for "acorns" of top-selling products, like Viruscan,
which it can use to replace lost sales. How? "It's
straightforward," Larson says. "You sell more," using such
things as promotions, direct mail and advertising. "You might
give spiffs [incentives] to a sales force to sell this product vs.
that product. It's called 'management.'"
He further says the company consistently defers 20% of sales to cover the costs of free support and upgrades. And since it's a consistent number, "we have limited discretion" that would allow the company to play with the numbers. "We don't over-reserve," he says. He adds that the company's writeoffs are "legitimate," covering such things as leases and severance. "We're confident in the quality of our writeoffs, and they're justified, with the caveat being our in-process research and development, because that's an art, not a science."
But $515 million of writedowns over the past seven quarters, vs. shareholders' equity of $352 million, is "vastly disproportionate to the size of the company," says one prominent short-seller. "There's a clear desire to charge off as extraordinary as much as possible." He alludes to the company's 10-Q, which discloses that additional charges may be necessary. "That basically tells you if things are working fine, that's ordinary, and if things aren't working fine, we'll take a charge."
Larson says he hasn't read the 10-Q because he's a sales and marketing guy, and 10-Qs are "written by attorneys. ... If you read the 10-Qs, you would never buy a stock."
It's unclear whether anybody but the shorts are reading the Network Associates' 10-Q.
And this final point: In his most recent speech on the subject, Levitt said the SEC is seeking "remedies" from one unnamed company and its top execs "for allegedly creating or increasing 'excess reserves' in the absence of an underlying basis." Larson says it's not Network Associates, because it hasn't been contacted by the SEC. Please pass the honey.
Happy trading,
John
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