The following is feedback from Karen Elliot of Spectrum regarding the recent announcement of $885K of 4Q 1998 revenues being deferred until 1Q 1999. The explanation sounds completely legitimate to me and reinforces earlier speculation that this issue is really a non-event. It would appear that we really do have another buying opportunity on our hands. I haven't been able to find any information that would lead to the conclusion that Spectrum is not on track to execute their business plan for 1999.
JP
--------------------------------------------------------------------
From: Karen Elliott [mailto:Karen_Elliott@spectrumsignal.com]
<mailto:[mailto:Karen_Elliott@spectrumsignal.com]>
Sent: Monday, February 08, 1999 8:28 PM
To: 'Eric Hirst'
Subject: RE: revenue recognition
Dear Mr. Hirst,
Indeed the policies between Cdn & US GAAP are very similar. Our auditors ruling reflects the fact that the accounting rules in the US are a lot more strict in interpreting when a company can actually book product shipments as revenue. The orders that were deferred into the first quarter of 1999, likely would have been accepted as Q4 revenue under Canadian GAAP. The ruling reflects an accounting issue, not an operational issue. Spectrum has always followed strict year end and quarter end operational policies. In this case the orders involved were ready to ship on December 31st, however our carrier was unable to make an end of day pick up that day. All the paperwork and packaging of the product was finished and the orders involved were sitting on our dock. Unfortunately, we were subject to our carrier's availability to actually move the orders off the premises. In exceptional instances in the past we have run into this issue and under Cdn GAAP it can be interpreted that the revenue can count in the quarter despite the fact that it didn't leave the premises until the next business day, because for all intents and purposes our work was done and we had signed the paperwork over to the customer. Our auditors have previously ruled in our favour on this issue under Cdn GAAP.
Under US rules, the product must leave our shipping dock before end of day and there is no room for subjectivity. This was the first time our financial statements have been audited with US GAAP, which is why the $885K became an issue and had to be deferred until the first quarter of 1999. I hope that helps to explain the situation. Please let me know if you have any follow on questions.
Sincerely,
Karen Elliott
> -----Original Message-----
> From: Eric Hirst [SMTP:Eric.Hirst@bus.utexas.edu]
<mailto:[SMTP:Eric.Hirst@bus.utexas.edu]>
> Sent: Monday, February 08, 1999 9:57 AM
> To: 'Karen_Elliott@spectrumsignal.com'
> Subject: revenue recognition
>
> Dear Ms. Elliott:
>
> I just read the Spectrum press release concerning the adoption of US
> GAAP and the resulting deferral of revenues to the first quarter
> of 1999. I went back to your 1997 annual report and read the
> revenue recognition policy based on Canadian GAAP-which seemed to be
> in line with the disclosures and methods used in the US. Could you
> please help me understand what caused the change in revenue
> recognition policy? That is, is there particular a US GAAP
> requirement that Spectrum did not meet (but that would otherwise
> have allowed revenue to be recognized under Canadian GAAP)? I'd like
> to get a handle on whether the issue revolves around US-Canadian
> GAAP differences and, if so, how.
>
> Thanks very much for your attention to this matter,
>
> Eric
>
> Eric Hirst
> Associate Professor of Accounting
> University of Texas at Austin
> CBA 4M.202
> Austin, TX 78712-1172 |
