Worth One Thousand Words, Here...

No words will suffice -- but do see my earlier posts below, anyway.

BREAKING: Late-Filed SEC Form 10-Q For Q1 Now On EDGAR

Here is the pertinent bit, from page 14:

. . .During the second quarter of 2012, the Company identified an error relating to its calculation of basic and diluted loss per share from continuing operations in its previously issued financial statements. As described in Note Thirteen “Capital Stock and Series B Stock” of the “Notes to Consolidated Financial Statements” included in our Annual Report filed on Form 10-K/A for the year ended December 31, 2011, the Company has paid periodic dividends on the Series B Stock and in 2011 repurchased certain shares of Series B Stock. Although the Company accounted for the dividends and repurchase in its consolidated financial statements, it did not deduct the dividends or in 2011, the amounts paid in excess of liquidation value in connection with the repurchase of certain shares of Series B Stock, when calculating basic and diluted loss per share from continuing operations of common stock. To correct this error, the Company has restated its previously issued Consolidated Statements of Operations as described in Note Twenty-Two “Restatement —Basic and Diluted Loss Per Share from Continuing Operations” of the “Notes to Consolidated Financial Statements” included in our Annual Report filed on Form 10-K/A for the year ended December 31, 2011. In accordance with Accounting Standards Codification 260, “Earnings Per Share”, the restatement deducts from such amounts dividends paid on the Series B Stock and the amounts paid in excess of liquidation value in connection with the repurchase of certain shares of Series B Stock.

The change in presentation had no effect on any other amounts or financial statement line items. . . .

So, the error added two cents of GAAP continuing operations loss per share to Q1 2011, pushing the loss to $0.36 per share. Here in Q1 2012, the loss was $0.22.

Before you jump for joy, here, though -- recall that CEO Conway is now calling for a pause in sales momentum in Q2 2012 -- so, I'd expect the continuing operations GAAP loss per share to widen appreciably from the $0.22 posted for Q1 2012.

In addition, as the upper right graphic indicates, note that the error "buried" (or hid from view) $0.55 of GAAP Losses Per Share from Continuing Operations, for the Year 2011, while Mattersight transformed from old eLoyalty -- emerging from its would-be chrysalis (but by appearances only -- it seems). No, it is still a caterpillar -- not a butterfly, at all.

More on that later. let's see where the stock opens on the NASDAQ OTC tomorrow. If it falls, expect lawsuits, as many many people bought in the $9-plus per share range, and it is (without any additional declines), now off 12.5 percent from a nine-buck handle. Maybe more, after tomorrow.

Ugly. Ugly. Be careful out there.

BREAKING: Grant Thorton Declares Material Weakness In Mattersight's Internal Financial Controls

Mattersight just filed its restated SEC Form 10-K, for last year -- with the corrected and restated losses per share from continuing operations now included. In order they were $1.29, $1.28 and $1.26 in 2011, 2010 and 2009, respectively. So, Not. Getting. Better. Getting. Worse.

In addition, Grant Thorton has just declared that it cannot opine on whether Mattersight's changes will prevent re-occurences of these sorts of errors, thus:

. . .A material weakness is a deficiency, or combination of control deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management’s assessment. Management identified a material weakness in internal control related to their process and procedures used in applying appropriate accounting to basic and diluted loss per share from continuing operations. This material weakness resulted in the restatement of the annual consolidated financial statements as of and for the years ended December 26, 2009, January 1, 2011, and December 31, 2011.

In our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, Mattersight Corporation has not maintained effective internal control over financial reporting as of December 31, 2011, based on the criteria established in Internal Control – Integrated Framework issued by COSO.

We do not express an opinion or any other form of assurance on management’s statement referring to the change in the internal control process and procedures of the material weakness. . . ."

Ouch. More soon. The original erroneous continuing operations losses per share were $0.74, $1.19 and $1.16 in 2011, 2010 and 2009. I'll put up a new post on the magintude of these errors, shortly -- but that is eye-popping: In 2011, the loss looked to be getting much smaller ($0.74) over time, but it is now $1.29. That is the fertile fodder for securities lawsuits, friends. Mark my words.

Now we wait for the Q1 2012 Form 10-Q -- it should be filed with the SEC by close of business tomorrow.

How Many Elapsed-Days Will It Take Mattersight -- To Divide Six Numbers?

This feels a bit like a "shaggy dog story" style-bad joke -- along the lines of "How many Matttersight accountants does it take to screw in a lightbulb?"

By Mattersight's own admission¹, the corrections to all the GAAP losses per share attributable to continuing operations figures (on the bottom of Note 1, on page 5 of the SEC-filed Form 8-K, Exhibit 99.1 dated May 9, 2012) will "result in a reduction of previously reported Basic and Diluted loss per share from continuing operations of ($0.02) for the [Q1 2011] period. The change in presentation will have no effect on net loss or any other amounts for any period. . . ."

That is, in plain(er) English "the errors won't affect any other calculations in the GAAP financials."

So -- as I said earlier, how can it possibly take five business days to divide the six numbers, as corrected (three annual figures, and three quarterly figures), by the basic and fully-diluted share equivalalent totals -- and then hit the EDGAR submit button?

My punch-line to my own riddle, above? It seems that Mattersight's corporate reporting staff conducts its operations on the time-frame dictated by the newly-discovered Mayan calendar (See The New York Times story -- on the latest-Guatemalan find, here).

<sup>~~~~~~~~~~~~~~~~~~~~~~~~~~

Note 1. It should also be noted (for the sake of completness) that it is possible with respect to some of the periods, the GAAP Continuing Operations Loss Per Share will decrease -- i.e., get better -- not worse, depending on whether the preferred is anti-dilutive, or dilutive, at that point in time, looking backward three years. Otherwise, I would have completed the calculations myself, already. So, do be careful out there.</sup>

One Other Thought: What Kind Of A Public Company...

Okay -- so it took a bit for my coffee to kick in this afternoon (also -- kudos to commenter "Bob" for pointing me to it!), so I apologize for not making this point in the last post. . . but let's all agree that Mattersight's business is -- in the main -- not highly-regulated. It is not a pharmaceutical company, or a nuclear energy producer; it is not a tobacco company. Thus compliance with law is not an immensely complicated endeavor, if -- as all executive officers ought to be -- you are the "best and the brightest."

So, I'll ask: how on Earth can it be appropriate to pay ANY part of a bonus to executives -- a discretionary amount, for going "above and beyond," in any common-sense definition of the word "bonus" -- for. Not. Breaking. The. Law. What??? C'mon, man!

The "Governance" portion of the bonus simply requires that executives avoid breaking the laws applicable to public companies generally. That is all the executives need do to "earn" it.

Goofy me -- I would have thought that the salary covers complying with the law. Again -- when one looks at Mattersight's actual governance mechanisms, such as they are -- one feels a bit like poor old Schrödinger's cat. Click on the image, at above-right, to enlarge [derived from a Wikipedia/Creative Commons tutorial]. [Is governance dead at MATR? Or is it in a perpetual state of undead/dead/alive -- all suspended in time, until, and only if we open the box and find GAAP earnings per share from continuing operations have been reported?]

I have no idea. Not even sure whether I'm curious about it, any longer.

But a Happy Mom's Day, just the same, to all the moms out there reading this.

Mr. Conway's Team Was Provided A Bonus On 2011 "Governance" Performance!?

Along the lines of my earlier post, on the potential for an SEC-initiated Dodd-Frank or S-Ox "claw-back" of some of the executive officers' pay, I took a moment to re-read Mattersight's latest SEC-filed proxy statement, in view of yesterday's warning to place "no reliance" on GAAP continuing operations loss per share, for the last three years -- due to "errors" in calculating the same (forgetting to include the preferred dividend obligations' accrual as an addition to the loss).
At page 29 of the latest proxy statement, we learn that the Compensation Committee awarded members of Mr. Conway's team 100 percent of their targeted bonus for "Governance" in the last year. The proxy recites that ". . .'Governance', defined as the Company’s timeliness and accuracy in financial and securities reporting and filing. . . ." is to be paid out, "based upon subjective determination regarding the occurrence of Governance issues; not subject to quantification. . . ."

It then recites that "Governance met or exceeded expectations | 100% [payout]. . . .

Well, call me a crumudgeon if you like, but "timeliness and accuracy in financial and securities reporting and filing" just went out the window -- and retroactively so, for the past three years.

So all of the past three years' bonuses keyed to "Governance" (to the extent any were paid for the past three years' "performance") ought to be clawed back by the board -- in the exercise of its fiduciary duties.

In fact, Mr. Conway, and Mr. Noon and Ms. Carsen ought to promptly volunteer to return all such bonuses "earned" in those prior periods. This -- by Mattersight's own admission, today -- is a "material effect" restatement, coming.

Time to test Mattersight management's integrity, I guess. Let's see what Monday or Tuesday brings -- at the SEC's EDGAR filing window.

MATR Now Off 7.8 Percent; Nearing Triple Normal Volumes...

Today's NASDAQ-OTC trading has been "fast and furious" -- in Mattersight's common stock.

As of about 2:48 PM EDT, nearly 110,000 shares have changed hands -- nearing triple the normal average volume, and down 7.77 percent for the day.

Wow. As I warned all last -- and this -- week, do be careful out there. Mattersight is lucky that Jamie Dimon's woes are drawing swift SEC scrutiny, in the news cycle today -- as on a quieter news day, MATR might have already heard from the SEC about the dismissive way in which it has so-far handled its mis-statement (understatement, actually) of its GAAP continuing operations losses per share, for the prior three years, and the prior three consecutive quarters.

Wild.