Netscape’s second quarter results, announced at the end of May, were absolutely remarkable. Remarkable not for the exciting points highlighted by CEO Jim Barksdale, nor even because the company just topped Wall Street’s expectations as the Wall Street Journal claims. The results are remarkable because they stand out as what could be seen as one of the most brazen pieces of financial manipulation to see the light of day so far this year. Some time in February, Netscape decided to shift its financial year-end from December 31 back to October 31. The reason given at the time was, to align the company’s financial reporting practices with its business strategy by taking into account the seasonal buying patterns of enterprise customers.
By Alex Sloley
Its seems plausible enough that a company which has changed focus would want to align its own financial quarters to match the buying patterns of its new customers. But when Netscape’s delayed financial results for the ‘new’ second quarter to April 30 were finally released, it transpired that other factors had influenced the decision to re-align. The shift in reporting dates had created an odd month, a fact which turned out to be quite handy. Moving the reporting deadline left January standing on its own, as the second quarter had now jumped forward to cover February through April. Netscape was therefore faced with a choice: Combine January with the new second quarter for a four month quarter, or leave this odd month to stand alone. Some choice it turned out to be. Netscape didn’t just leave January on its own, it hung it out to dry. This one month was used as a parking lot for all manner of charges and expenses, while every cent of available revenue was spirited away to bolster the ‘new’ second quarter. January was used as a scapegoat to craft a shiny new second quarter from the wreckage of what was originally destined to be a howler. What Netscape expects us to believe is that the month of January was responsible for just $8m in revenues, while simultaneously accruing some $51m in product, service and operating costs. Added to this, a $12m restructuring charge was identified as occurring solely in the month of… you guessed it, January. The second quarter to April on the other hand, freed from numerous encumbrances, turned out to show sequential revenue growth and encouraging break even earnings, just as analysts had predicted. Is there anyone at Netscape who was ever taught the fundamental concepts of accounting? Chief amongst these fundamentals is the concept of matching. As taught to would-be accountants in their first week, matching requires that the costs of running a business must, as far as is reasonably possible, be matched over any accounting period against the revenues towards which they contribute. Netscape, it seems, has temporarily chosen to forget this overriding rule. What’s even more remarkable is that people actually bought it. The Wall Street Journal reported in its banner headline that Netscape Meets 2Q Views, while Techinvestor shouted, Seldom has a company impressed so many people by breaking even. And the mere fact that people reported in this kind of way will, most likely, serve to encourage other companies to try exactly the same kind of stunt. Having a bad quarter? Try changing your year-end.
