Shares of BMC Software fell nearly 12 percent Thursday after the company restated its earnings for its last fiscal year and an analyst downgraded the stock.
Houston-based BMC was asked by the Securities and Exchange Commission to refigure its financial numbers for the fiscal year ending March 31 to reflect the acquisition of BGS Systems, a small software company, late that year.
Satisfied with the new figures, the commission on Thursday approved BMC 's purchase of a bigger company, Boole & Babbage of San Jose, Calif., for about $800 million in stock. The acquisition was first announced last November.
While the SEC matter was resolved by day's end, BMC 's stock closed at 41 9/16, down 5 7/16. The 16.4 million shares traded made BMC one of the day's most active stocks.
Originally, BMC had declared that BGS was small enough that BMC would not have to restate its past year's earnings. In financial jargon, BMC said the acquisition was "immaterial" to its earnings. But the commission, after it toughened regulations as to what could be considered immaterial, asked BMC for the change as part of the paperwork needed to approve the Boole & Babbage acquisition.
"We believe that our treatment of the transaction was appropriate based on the accounting literature effective at the time of the transaction," said BMC spokesman Dan D'Armond.
While BMC closed the $285 million BGS deal just a few days before the end of its fiscal year, the SEC action forced the company to go back and redo its earnings as though it had owned BGS all year long.
When BGS was included in the results, BMC 's sales for the fiscal year ending March 31 were $788.2 million, with profits of $175 million. Previously, BMC had reported sales of $730.6 million and profits of $165.9 million.
That BMC might have to restate its earnings as a result of SEC action was foreshadowed in a Feb. 16 filing with the commission. In those documents, BMC warned that the SEC wanted more information as part of the approval process for the Boole & Babbage deal.
The commission also looked at how BMC was accounting for research and development in the companies it has acquired.
Max Watson Jr., BMC 's chief executive, said through a spokesman Thursday that the SEC approved the Boole & Babbage purchase with "all reporting and disclosure issues resolved," and that there would be no impact on BMC 's current fiscal year report.
But the SEC approval came after the market`s close and after BMC `s stock was hit by a one-two punch.
Word that BMC had been forced to restate its earnings came from a column by Herb Greenberg on The-Street.com, a popular Web site.
And just as the column was going online Thursday morning, a Prudential Securities analyst cut BMC 's rating from "strong buy" to "accumulate." No explanation was offered for the change.
In an interview, Greenberg said the SEC had talked to more than 150 companies about changes in regulations that might affect past earnings.
"It will be interesting to see how many companies are going to get nailed for this material vs. nonmaterial issue," Greenberg said.
Sameer Nadkarni, an associate analyst with Credit Suisse First Boston in San Francisco, said BMC 's stock dropped along with a number of other big-name tech stocks. But he said investors also were concerned that the new numbers might mean a softening in a key market for BMC - software used on big computer networks.
BMC began by making software used to speed up databases on mainframe computers. But as networks of smaller machines have become more important in businesses, BMC has expanded its offerings - largely through acquisitions - to include software for these client-server networks.
"They're concerned that BMC 's open-system product line is not as strong as some people expected," Nadkarni said.
But Chris Mortenson, an analyst with BT Alex. Brown, told Bloomberg Business News that "it seems like much ado about nothing."
Mortenson, who rates the stock a "strong buy" and is recommending that investors buy because of the decline, said when people hear that a company is restating earnings, they "assume you are caught doing something wrong."