Slashdot Mirror
Red Hat Vs. The Lawyers
ajs writes "On July 13, Red Hat announced that they would be re-stating their revenues for the last 3 years. This sent a shock-wave through their stock price, but early analysis seems to indicate that it's not that big a deal (the end-result is the same for a given contract, but it will be counted toward a different month). But then the really bad news hit. [Opportunistic lawyers] are taking this opportunity to punish Red Hat for reporting the change and the resulting drop in price. Red Hat is doing well, but can they weather major class action law suits without harming the business? How have other technology companies dealt with this sort of suit?"
From reading the submission blurb it seems that those impeccable white knights on horse just made a mathematical error (must've been using an older kernel) and the resulting slump is pure emotion by the investors.
Well, it's not. RedHat's Q4 2003 earnings are now $0.02 instead of $0.03 which is either a 33% or 50% reduction, depending on which way you count, and the stock fall represents just portion of that.
Also, even after fall, Red Hat trades at 133 P/E, which is way overvalued even for this sector (MSFT, for example, is at 40.59).
People don't like to be lied by management when they invest their money into the company, and people will launch lawsuits when they deem something inappropriate had been done.
Huh? Reports are that SCO is being investigated by the SEC...
See This story on Newsforge for some info about it, reported back in March...
Insanity is a gradual process; don't rush it.
Red Hat has college scholarships for talented programmers.
This isn't the typical "ooops, we recognized all the revenue of that 5-year contract this quarter" shin-an-igans that you typically read about - this isn't that huge of change - as referenced in the article, take a look at the restatement table and the net income/loss per share hardly changes.
Hulk SMASH Celiac Disease
Then damn news broke on 2004/07/13. It is now 2004/07/14. A one day delay is very good for /.
Which they only did because the SEC was coming after them, and they didn't want to go to jail. Oh thank you redhat.
Actually, their auditors recomended they restate their earnings, and they did.
Au contraire. Buy when it's going up and sell when it's going down. Right now it's still going down.
Sounds like me that they decided the booking for their system was out of kilter for one month and just adjusted the entries back by one. Unforunately, it is the ignorant masses that do not understand it; they caused the price drop. Personally, I would see this as a sign that they wanted a more strict book keeping, which on the face of it sounds like responcible accounting behavoir. Take basic accounting and you'll quickly realize there are many complex issues and multiple ways to be "right."
My two cents,
Bel, the mostly sane.. "Of course I can't see anything! I'm standing on the shoulders of idiots." -- Me
To save everyone in this thread the trouble of actually reading the article...
Red Hat "determined it would be appropriate to stop recognizing revenue for subscription agreements on a monthly basis - a method it has consistently applied for the last five years Ð and start recognizing revenue on a daily basis over the particular contract term."
In other words, they're counting the subscription payments per day rather than per month. Hardly Enron-esque material. The way I understand it, it means that some of the revenue will be reported on different days. The amount is the same, and there's no extra money disappearing that could've tricked investors into buying Red Hat stock.
Karma: Contrapositive
All they effectively did was change a "YY/MM" field to "YY/MM/DD".
umm... did you read the article? they are being responcable and the changes being made are the way they are counting some types of revenue. all the are doing is counting is daily instead of weekly/monthly ect. The reason newsworthy and was reported to the shareholders is because it gives insight into thier acounting practices and it is thier responcability to justify any changes to the apropriate officials including sharholders.
To put this in a more simple way, this is like you having a lemonade stand and counting your sales every week or month and then deciding to count them daily. the end result is the samer in the acounting proccess but now you have more of an insight into your daily operations.
If microsoft or SCO was doing somethign like this, of course there would be some scepticizm on the motives but the end result would be the same. "it is nothing". I would also bet that the only reason the SEC is even interested in this is to cover thier own asses if somethign turns wrong later. Lets wait for somethign actually bad to come out of thier investigations before we start trolling. Well i guess troll is to strong of a word for your comment. Somethign like quick to show you didn't RTFA or understand it is more reasonable. Besides the lawsuite is by lawers claiming to represent shareholders causing the problems in question, not the SEC. It would be interesting to find out how many sharholders actually feel they have been wronged by a proceedural change the has the exact saem end result. It will be even more interesting to find out the reasoning behind any legitamit judge not throwing the case out based on it merrit.
Unless somethign is being said or done here that isn't in the article or any of the coresponing article at redhats site, i don't see it gaining any traction. But then i'm not a lawer so i wouldn't know how to suite a companie for doing somethign by the books as the law states (ie.. reporting a change in the way they do thier acounting) especially when the change doesn't really change anythign as far as thier statments are concerned.
Isn't it just grand how thousands of very intelligent geeks spent countless hours creating and improving Linux and Red Hat, and now a bunch of doughy, pasty-faced vultures at "Goodkind Labaton Rudoff & Sucharow LLP" will rake in an assload of cash from this?
Naw.
There are a number of sleazebag outfits like "Dewey, Sooem, and Howe" who file class action suits every time a stock takes a major dive, and advertise for some (possibly former) stockholder to sign on as lead plantif. (Expect several more before this is over.)
Usually what happens is they get before a judge and get pitched out on their ear. Occasionally the company screwed up, in which case they MIGHT get some judgement - of which Dewey et. al. split a big chunk and a bunch of stockholders maybe get pennies per share. It's like playing the lottery, for law firms with some small-change time on their hands.
They almost never get anywhere. But when a whale truly IS wounded the shark's chunk is SO big that every time there's blood in the water the sharks circulate in hopes of a feed.
Red Hat will no doubt slap these guys down in due course - at which point you will see a small note in the stock's news page. That's part of why corporations keep at least one attorney on staff. Partyl to make sure they stay squeaky-clean - partly to lead the coutner-attack when somebody says they're dirty.
Bantam Dominique roosters crow a four-note song. Once you've heard it as "Happy BIRTHday" you can't NOT hear it that way
If you have yum. I swear to god... I did a fresh install, pointed yum at the appropriate mirror, and did a dist-upgrade. The only thing it didn't fix was the /etc/redhat-release still being used in the /etc/issue* banners.
THIS THING CAN TURN ON A DIME, MACROSSZERO STYLE ALSO FUCK BETA, ~NYORON
Yes some red hat 'fans' left but I monitor 3 of fedora's lists and I can tell you there is no shortage of suse/mandrake and a few Debian converts. After the initial "red hat shot my dog" emotional rants people settled down about the whole thing. Check out distrowatch Fedora has 1100 hits per day, second most popular distro behind Mandrake and It's only 9 months old; that's not exactly what I call 'abandon ship' everyone seems to be saying.
-- "of course thats just my opinion, I could be wrong." --Dennis Miller
Uhm, did you even read the article? They didn't lie about their earnings. Their overall earnings remain constant. Whats changing is when they are counting their income on individual subscriptions. Instead of it being agregated monthly it's going to be amortised over the life of the contract on a daily basis so that it matches up with the losses incurred for the contract. The previouse methodology was in no way weird, non standerd nor sneaky. This way is just better.
Realities just a bunch of bits.
"Federal authorities are investigating Microsoft Corp.'s, practice of setting aside some of its software revenues and recognising them later, chief financial officer Greg Maffei said. Maffei said in a conference call with reporters and analysts that the U.S. Securities and Exchange Commission apparently launched the probe after a newspaper report drew attention to a dispute over whether the company dips into its "cookie jar" of reserves to smooth financial results."
Microsoft Says SEC Probing Accounting Practices
"The Securities and Exchange Commission is reviewing potentially improper accounting procedures at Microsoft, according to a company executive. The federal agency is investigating how the company accounts for its financial reserves and related policies, according to Greg Maffei, chief financial officer for the leading PC software maker. Microsoft is cooperating with the SEC's efforts, he said."
SEC probes Microsoft's accounting methods
"Microsoft Corp. is still being investigated by the Securities and Exchange Commission for possibly underestimating its revenue in order to show a sustained earnings growth, according to a published report. The Wall Street Journal reported Wednesday that the software provider, which disclosed the investigation more than two years ago, is of limited concern to analysts. But it said the investigation is the flip side of the current investigation of the collapse of Enron Corp., a company that is accused of overestimating its profits in financial reports."
SEC probes Microsoft
I was at a company that went public around the same time. We received all kinds of warnings about making statements and hyping the company, and then watched as Red Hat DID all the things we were warned against doing.
So good for the lawyers! A lot of people lost a lot of money because Red Hat was hyping its stock.
For me at least, upgrading from RH9 to FC1 was pretty easy. Going from FC1 to FC2 was much harder (dual boot bug, no boot floppy, among other things).
It is pretty sad that some greedy lawyers are looking to cash in on this small change in accounting. Coincidentally, I do not believe that either method of accounting for this revenue is incorrect and certainly not illegal. No wonder so many companies continue to maintain bad accounting practices, changing them for the better will get them sued.