Tom, I think Corel made a strategic decision not to recognize WP8 Pro sales in Q3. I believe this accounts for much of the shortfall in revenue. You're right that Corel already has reserves for returns, rebates and bad debt. I believe management largely took this action for two reasons:
1. For several quarters Corel has accrued revenue to the max, and maybe then some. A/R swelled to point that I wondered if distributor's were accepting inventory on consignment. I believe that if revenue for Q3 had been recognized as it has in past quarters, that the number would have been around A.H.'s $125 M projection. By recognizing $96 M, A/R will be approx $30 M lower.
2. Using the "accounting excuse" to reduce A/R further. Why? Again, to reduce A/R by another $42 M to bring it to an acceptable level relative to sales. An A/R figure of $50 M is much more believable from a company of sales $100 M per quarter, or more. By taking this big hit all at once, after having written off the WP acquisition, previous overstatements will have been adjusted for, and the balance sheet becomes much more reflective of "real" assets, and "real" equity.
I'm now looking for the A/R figure for Q3 to be around $50 or 60 M. I expect we'll hear something about CCC expenses, or possibly, a nixing of CCC totally. Some Java write-offs could also be a part of the equation.
On a cash basis Corel started the quarter with $20 M in cash, and has indicated that cash was still at $20 M at qaurter-end. Corel must have collected about $80 M in receivables, probably made direct shorter term corporate and other direct sales of $20 M. Direct costs will likely be around $20 M, with G & A of about $80 M. This would leave the $20 M cash in the bank at the end of Q3.
If this analysis is anywhere close to the actual scenario, this maneuver will be beneficial to shareholders. If initial WP8 Pro sales are booked for Q4, along with all the latest releases of the other top quality offerings, I think we'll see growing "buy" recommendations from analysts.
Up, Up & Away!
Scott
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