Re: Lots of 'goodwill' lost over those accounting changes

["Charles Jannuzi" <jannuzi@xxxxxxxxxxxxxxxxxxxxxxxxx>]

Well, and this company wants to become the next Enron (and the markets
agree, sending the stock up over a dollar yesterday!). They just started up
an online 'services' entity and they have 'clarified' their accounting, so
who knows, maybe they'll be worth hundreds of billions before long.

http://www.business2.com/articles/web/0,1653,39298,FF.html?ref=cnet

THE BOTTOM LINE

More Trouble in Houston  Seitel is the latest Texas company to get into an
accounting mess.

By Adam Lashinsky, April 01, 2002

PALO ALTO - Could there be something in the water in Houston?

First, of course, there was Enron. Then, Hanover Compressor (HC), featured
in this column in February, had to restate revenue.

The latest: Seitel (SEI), the energy company that's also a software purveyor
and librarian of seismic data used by other energy concerns searching for
oil. Little Seitel (market capitalization of $228 million at Monday's close)
made a doozy of an announcement Monday, its deadline for filing its 10-K
annual report.

Here are the highlights. It'll re-state a total of $68 million in revenue
over two years because it has "chosen" to adopt a series of more
conservative accounting policies. Its chairman and CEO is in discussion with
his board about amending his compensation agreement so his bonus is tied to
earnings instead of revenues. It is in violation of some of its banking
agreements. Oh, and Seitel SEI isn't saying a peep about its future
performance other than that it will be profitable in 2002.

Other than that, everything is hunky dory.

In fact, Seitel's conference call Monday with investors was a model of
confusion. Chairman and CEO Paul Frame said the re-statement -- a reduction
of revenues by 22 percent -- would clear up a number of issues. Instead,
analyst after analyst struggled to figure out what was going on. Seitel made
two significant changes in how it recognizes revenue. It will recognize them
more slowly, effectively waiting until customers choose which of Seitel's
information it will use. And it will change how it recognizes revenue from
contracts to buy and sell data for its seismic-data library.

Those may be steps in the right direction, but there's still a lot to wonder
about. For example, Seitel brags that its "non-cash" revenues -- which "some
of you refer to as barter transactions," said Frame -- accounted for only
13.4 percent of overall revenues in 2001 and that a third-party firm has
verified the value of those revenues. That reported 13.4 percent, however,
is up from 5.3 percent and 7 percent in the previous two years, according to
Seitel's 10-K. And "non-cash" revenues account for nearly half of Seitel's
deferred revenues, the balance-sheet item that suggests what future-year
results will be.

Of course, given the -- shall we say -- dynamic nature of Seitel's
historical results, who knows what the new numbers really say about the
future?

Humoring Jack

An angry reader named Jack didn't like the article here last week suggesting
that investors remain too enamored with technology stocks. Disagreement is
good. That's how our convictions get solidified, by rigorously debating
them.

But Jack took things a step further by accusing me of dealing with readers
in bad faith, a not uncommon charge from the foam-at-the-mouth crowd. "Could
it be that you or somebody you know has interest in 'shorting' the stock?"
he wonders. "It has become apparent, especially since the Enron mess, that
conflict of interest is alive and well in the investment community. Humor
me, tell me why you felt compelled to write your article today, and why we
should give you the benefit of the doubt."

Okay Jack, I'll humor you. I wrote that article that day because it was the
best idea I had. Other than shares of my own employer (AOL Time Warner) or
the employer of one of my family members, I don't own any individual stocks.
And if one day I do, I'll disclose that in my column. Does that mean I'll
never be wrong? No way. It does mean I've got no agenda other than that of
journalism. Period.

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Posted by Charles Jannuzi