Shares of Salesforce.com (CRM) are down after the company this morning disclosed in a filing with the Securities & Exchange Commission its responses to a letter from the SEC questioning some of its reporting of cash flow.
The stock is off $4.64, or 2.7%, at $170.01.
In the letter, the company pledged to “revise future filings to include additional discussions of significant fluctuations in our working capital acccounts necessary to convey a deeper understanding of operating cash flows.”
The SEC took exception to the following phrasing of operating cash flow, as presented in Salesforce’s 10-K filing for the fiscal year that ended in January of 2012:
[Cash flow from operations] has historically been affected by: the amount of net income (loss); sales of subscriptions, support and professional services; changes in working capital accounts, particularly increases and seasonality in accounts receivable and deferred revenue as described above, the timing of commission and bonus payments, and the timing of collections from large enterprise customers; add-backs of non-cash expense items such as depreciation and amortization, amortization of debt discount and the expense associated with stock-based awards.
In response, the SEC asked the company “What consideration was given to quantifying and explaining significant fluctuations in working capital accounts” and “how you manage accounts receivable,” and “disclosing the specific factors that affected the change in deferred revenues from period to period as well as key operational or financial metrics you track in evaluating deferred revenues and revenues,” among other questions.
A number of bulls on Salesforce shares are out defending the stock today. One was Morgan Stanley’s Adam Holt, who reiterates an Overweight rating on the shares, writing that the� “re-surfacing of filings from earlier this week detailing correspondences between the SEC
and Salesforce should be viewed as a non-event.”
Holt writes that the SEC investigation was completed on December 13th, and that the requests from the SEC seem to him to be not very different from similar requests that other companies he follows have received from the SEC:
The SEC commonly requests further information as it relates to a company�s 10-K filing, and after review, nearly 80% of our large-cap companies have received such a
request of their FY12 filings (and this could actually be higher since they are not immediately disclosed). As it relates to Salesforce in particular, we interpret the
requests as very common to those of other companies and they do not suggest any accounting improprieties.
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