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The more I learn, the more I hate pro forma accounting. So I had to write this letter to Macromedia, and I urge everyone who agrees to email with your own well-reasoned arguments in favor of GAAP.


I am an investor in Macromedia and a big fan of the company as well. As a fan, I use Flash and Fireworks extensively, think they are fantastic, and evangelize them to others. As an investor, I spend an inordinate amount of time wading through an extremely convoluted balance sheet.

How does it help to release pro forma numbers in your press releases, and not GAAP numbers? Yes, the pro forma numbers are, for the most part, the continued cost of business and what is left out are one time hits to earnings. But a dollar lost is a dollar lost, whether you release it or hide it at the end of your earnings spreadsheets. And items such as compensation by options are a recurring cost and a form of payment to employees - there is no excuse to leave that off "official" earnings statements, common practice or no.

I cannot speak for every investor. Perhaps others would prefer to view the world through the rosy hues of pro forma statements. But there does seem to be a backlash to these types of statements on the horizon. Investors are taking cold hard looks at their holdings, and many are beginning to wonder why companies now feel it has become necessary to filter out bad news in an end run around tried and true generally accepted accounting procedures. The business media is picking up on this backlash. In my own experience, Macromedia is the worst offender in my very small portfolio. Most other companies at least mention the GAAP numbers in their press releases.

A businessweek article this week has an "expose" of the modern era of pro forma accounting, and if it is indicative of things to come, it ain't gonna be pretty when the proverbial feces hits the fan media-wise. Warren Buffett and Charlie Munger, two of the worlds most successful investors, continually rail against this practice, and Munger has said that unreported compensation by options could lead to a future financial collapse.

So I plead with you - please, please, set an example against bookeeping parlor tricks, and release GAAP numbers ONLY. Your fundamental business is strong and growing every day. What need do you have to try and hide the truth from investors? All this does is create doubt in the minds of people like myself, people who want a stake in a company, who want to own it and be a part of it, with full and confident understanding. It makes the investor wonder whether management is truly confident in the potential of the business, or is merely trying to prop up the stock price regardless of reality.

Forgive me for going on so long. I get long-winded when I am passionate about something. And in this case, I am passionate about both Macromedia and honesty in accounting.

Mark Lindholm
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