I wish I could contribute something positive to this thread about Corel, but the latest revelation of CEO Cowpland's stock sell off in August raises some serious legal and ethical questions about the actions and statements by Corel's management and by Cowpland in particular. There are a number of statements by Cowpland to the press (both posted on this thread) that did more than just raise my eyebrows:
10/3 Ottawa Citizen: "Mr. Cowpland told the Citizen yesterday he did not profit from insider information when he sold his stock, saying he sold his shares before the third-quarter losses became apparent to his senior executives. "I would have sold all my shares if I had had any doubt about the future of the company," Mr. Cowpland said. "Everything was on track at that point."
10/4 Financial Post: "Corel Corp. president Michael Cowpland said Friday he didn't know the company was facing one of its most disastrous quarters when he sold $20.5 million worth of Corel shares in August.....Cowpland denies he knew about the third-quarter loss when he sold the stock. "The quarter looked like it was made at that point," he said. It was only the following month when Corel found a "hefty amount of inventory" shipped to distributors had not been sold to consumers, Cowpland said."
Cowpland must think he can continue to fool the press, the analysts and Corel's shareholders with these kinds of self-serving statements, which are demonstrably outright lies.
Back in March/April of this year when I only held about 2k shares of Corel (that I bought on instinct at $8.00 US in December 1996), I was considering taking a substantial position in Corel because I considered the shares a steal at $6.00 US. I put a lot of time and effort into building a detailed financial spreadsheet model of Corel's potential sales of the WP product over the following 12-24 months. One of the key pieces of data I needed was some real time reliable information on actual sales of Corel's software products. Since Corel sells 80-85% of its software at the retail level, I contacted PC Data, the company that tracks retail sales of computer hardware/software, and which publishes the monthly "top ten retail sellers" of WIN 95 and other classes of software that have been posted on this and other SI threads. They sent me their sales and publicity literature, plus a sample (9/95) of the type of detailed monthly sales reports that they provide to their subscribers.
These reports aren't exactly cheap - $3600/year for the WIN 95 report, $3600/year for the business software report, $10,000/year for the corporate sales (through resellers) report, etc. But the level of data they provide is well worth the price. Each report tabulates by SKU the actual unit and dollar sales of every marketed software product in the particular group, together with the initial release date, the % of retailers/resellers stocking the product, the average $/unit sale, and the YTD totals. The monthly reports are made available to subscribers online, by disk or hard copy, and are available by around the 10th of the month, and PC Data publishes the monthly top ten (minus the detailed data of course) about the third week of the month on its web site.
Who gets these reports? Not us, the individual investors, because PC Data (to protect its corporate subscribers I guess) told me both verbally and in writing that they won't sell the reports to individuals, consultants, PR firms, etc. They told me verbally that they only sell the data reports to companies that develop, market, sell, and resell computer hardware and software.
Some quotes from PC Data's sales literature:
"PC Data produces the most accurate information available. They provide facts not estimates." -Michael Cowpland, President, Corel Corp.
"The most useful data available in our industry. Absolutely indispensable." - Doug Carlston, Chairman Broderbund.
"This is the only data that really tells us what customers are buying. PC Data is essential." - Gordon Eubanks, CEO, Symantec.
"If I have ten minutes between my meetings, I run to my computer and run a query on PC Data to understand the retail industry." - Mike Negrin, Director of Channel Sales, Microsoft.
"Measurement is key. Being in the industry without PC Data is like bungee jumping without first measuring the cord." - Scott Cook, Chairman, Intuit.
This last one is most apropos - Cowpland was the one of the few Corel investors jumping who knew how long the bungee cord was, the rest of us hit the darned ground pretty hard.
Now consider what the availability of this kind of data implies for the integrity of Corel's management - and it's not just Cowpland, because all of them from Cowpland, Norris, the board on down, had access on a monthly basis to reliable data that told them exactly what Corel's end point sales out of the channels to customers actually were:
(1) On a monthly basis since WP7 was launched in 1996, Corel knew exactly how many units of WP7 they had shipped into the channel, how many units had actually been sold to customers, and how much unsold inventory was left. Now we find that there is at least $11 million of unsold WP7 in the channel, and maybe more, since it's still being offered for sale by Tiger and others, and Corel is going to take another sales write down in the 4Q to reduce channel inventory - how much is WP7 and how much WP8 we aren't told.
(2) By about July 10, Corel knew exactly what their retail and corporate sales of their software products to customers were for the month of June, in particular for WP7 and WP8.
(3) By about August 10, Corel knew exactly what their retail and corporate sales to customers were for the month of July, in particular for WP7 and WP8.
(4) By about September 10, Corel knew exactly what their retail and corporate sales to customers were for the month of August, in particular for WP7 and WP8.
(5) So by August 11, when Cowpland (and who knows who else with this insider information) started selling, he had two months worth of actual sales data in hand for the quarter, and despite his public pronouncements about how well WP8 was selling, he knew it wasn't. With that kind of hard sales data, I'd have sold my own shares at a profit.
(6) By September 10, Corel had in hand the entire sales data for the quarter, and presumably they had to finally face reality. Small wonder they delayed the quarterly earnings report from 9/19 to 9/24, they must have been hoping there would be enough of a surge in August sales to hide the truth again.
There hasn't been anything -- yet -- to suggest that Kramer or RBC Dominion Securities had any of this sales information available when they made their "buy" recommendation on August 12, but it's definitely suspicious. Ian Fleming in one of his James Bond novels wrote "the first time it's happenstance, the second time coincidence, and the third time it's enemy action". The Kramer/Dominion recommendation and Cowpland's selling suggest to me much more than "coincidence", and I'd sure like to know how many Corel shares Dominion bought/sold for itself and its favored clients and when the buying/selling occurred. But whether or not there was any collusion with Cowpland and Corel, it's clear that a number of Cowpland's recent statements reported in the press are outright lies:
When Cowpland said he "sold his shares before the third-quarter losses became apparent to his senior executives.... Everything was on track at that point", the statement was an outright lie, because by August 10 they had the June/July sales data and they already knew how bad things were -- there was no way one month's additional sales could make up a $42 million shortfall.
When Cowpland said "he didn't know the company was facing one of its most disastrous quarters when he sold $20.5 million worth of Corel shares in August" that was a lie as well -- even Cowpland can't call a potential $42 million revenue shortfall anything other than "disastrous".
When Cowpland denied he "knew about the third-quarter loss when he sold the stock. "The quarter looked like it was made at that point" that was lie as well. How in hell could the quarter have been "made" by August 11-14, when the two months of sales data in hand told Corel they were facing a $42 million shortfall?
When Cowpland said "It was only the following month when Corel found a "hefty amount of inventory" shipped to distributors had not been sold to consumers" that was a lie as well. They knew exactly how much product they had shipped into the channel, and they knew exactly how much had been sold out of the channel. Now we know why Corel's distributors were offering such deep discounts on WP8 and WP7 in June/July/August - they were desperately trying to unload some of the inventory build-up.
Go back through the posts on this thread for June, July and August and find the number of upbeat Cowpland statements about WP8 sales being strong, how WP8 sales were 35% ahead of WP7 in 1996, how Corel's market share was increasing, etc. etc. - all demonstrable lies in the face of the actual sales data they had.
When Corel pre-announced the $42 million shortfall on September 10, it blew my financial model out of the water so far that I immediately dumped all my Corel holdings at a considerable loss. It also prompted the E-Mails I sent to Cowpland/Norris that I posted on this thread, because it seemed to me inevitable that there would be more similar news for the 4Q. Despite Norris's reassurances, I can't say I was surprised to hear that the 4Q would also have a considerable write down to get rid of the unsold channel inventory.
I apologize to all for the length of this post, I just had to unload my angst somewhere. Maybe my next step will be to file a complaint to the Ontario Securities Commission requesting an investigation of Corel and Dominion, or contact some of my legal clients and see if they would consider undertaking a shareholder lawsuit against Corel and Cowpland. Needless to say, I'm out of Corel, and I'll stay out until Cowpland and his cronies are kicked out of control.
Good luck to all of you who are still left holding part of this bag.
David T. |
