John and all others,
I've got a stake in VCSI and several other software co's. I am posting an EARNINGS ALERT for all software companies with extended payment contractual agreements from an article in April 30 NYT's:
Accounting Rule Hurts Software Companies'
Revenues
By MELODY PETERSEN
< NEW YORK -- A small California computer company announced this month that its revenues fell 30 percent in the latest quarter, not because of slow sales, but because of a new accounting rule that could soon affect the bottom lines of high-technology companies across the nation.
The company, Creative Computer Applications Inc., which is based in Calabasas, Calif., is one of the first to begin applying the rule and said it did so to get the bad news out of the way.
"A lot of companies are sort of pooh-poohing this and saying that it won't have much of an effect," said Steven M. Besbeck, Creative Computer's chief executive officer. "I think they are wrong."
The rule, which has caused a stir in the high-technology industry, requires companies to postpone revenues on certain software sales if all the promised components and services have not yet been provided. In some cases, companies will not record those revenues for many months, if not years.
The rule applies for fiscal years beginning after Dec. 15, 1997. Companies operating on a calendar year had to comply in the first quarter of 1998, and those quarterly results are just coming out. Because its fiscal year begins on Sept. 1, Creative Computer could have waited, but chose to go ahead.
Some software companies, including Microsoft, say they are well prepared for the rule and have been using similar practices. But accountants and corporate financial executives say quite a few companies have been aggressively recording revenues on software sales that are not truly complete. Like Creative Computer, those companies
could see sales plunge this year.
The new rule, called Statement of Position 97-2, took a committee of accountants almost five years to write. The committee was created by the American Institute of Certified Public Accountants, which approved the rule last fall.
Jerry R. Masters, Microsoft's senior director of planning and reporting, was one of only four committee members who persevered for the five years. He said the rule would have no effect on Microsoft's revenues.
"We have always recognized revenue when earned," Masters said. "We try to be conservative and to not get ahead of ourselves."
The impact at Creative Computer has been clear. The company reported that its revenue fell in its fiscal second quarter ended Feb. 28 to $1.3 million from $1.8 million in the comparable period a year earlier. Besbeck, the company's chief executive, said he believed sales would recover in about six months. He added that the company had not been aggressive with its accounting and that other companies might be far more affected by the rule. >
Copyright: New York Times April 30, 1998
I don't know how we have recorded revenue, but this change is far more likely to hurt companies supplying professional, process or support software than a company like Microsoft, selling a package. It's interesting that the accountant from MSFT was only one of four on the committee to brave out the five year negotiations; I'm sure Mr. Bill rewarded Mr Masters well!
best, art |
